Dueling Fools: Overstock.com Bear

I have a confession to make: I am the Sith Lord that Patrick Byrne has cited as the mastermind of the plot to destroy Overstock.com (Nasdaq: OSTK  ) . I am finally ready to reveal myself and to challenge St. Patrick directly. With the power of Skeletor and all the forces of darkness (a.k.a. short sellers) behind me, I shall destroy him and the greatest company in the history of the universe, Overstock.com.

OK, so that may not exactly be true. But I do share the same beliefs as that Sith Lord who exists only in Patrick Byrne's less lucid hallucinations. There are two simple reasons why Overstock.com is the quintessential bad investment: Its CEO is not focused on his job, and it is a second-rate business in an industry where only a few big companies can survive.

One of the reasons so many people love to hate Overstock.com is that its CEO, Patrick Byrne, seems to care more about advancing his conspiracy theories than about running his company. He has railed against short sellers for years, and he has been particularly critical of naked short sellers.

While I'm not an advocate of naked short selling, Byrne and his followers use it as a scapegoat for everything bad that happens to Overstock.com. It may surprise Byrne's followers and even some Fools, but most of the people in the world -- and most of Overstock's customers -- do not give half a hoot about short sellers, Byrne, or Sith Lords.

It is therefore hard for me to believe that short sellers are somehow causing Overstock's revenue to stagnate. Revenue for the first nine months of the year fell 5% from 2006 levels, and revenue in the "great" third quarter was up only 3% year over year. Stagnant revenue and a continuing lack of profits reveal Overstock.com for the poor business it is. Despite its dot-com name, it has more similarities to Montgomery Ward than to Amazon.com's (Nasdaq: AMZN  ) successful business.

Online retailing is perhaps even more cutthroat than bricks-and-mortar retailing. Unless Overstock.com offers a truly unique experience, there is no reason why its customers won't click elsewhere. Its competition is intense; besides Amazon.com and Red Envelope (Nasdaq: REDE  ) , it also faces specialized online retailers like Buy.com and Newegg.com, not to mention traditional discount retailers like Target (NYSE: TGT  ) and Wal-Mart (NYSE: WMT  ) that also offer their products online.

Evidently, Overstock's potential customers agree with me that there's little point in shopping there. The company has had to discount heavily and use sales promotions in the fourth quarter, resulting in what Byrne predicts will be lower gross margins. While bulls might point to the anticipated 10% rise in gross bookings this quarter, it is hard to get excited about revenue gains disguised with faltering margins.

Wait! You're not done yet. Go back and read the rest of this Duel, then vote for the winner.

Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 557285, ~/Articles/ArticleHandler.aspx, 3/28/2015 11:15:24 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!