By Rick Aristotle Munarriz
December 21, 2007
Bears will never be happy with Overstock.com (Nasdaq: OSTK). Remember when revenue was growing wicked fast and the red ink was gushing? They hated that. Now we find Sith Lord Michael complaining about sluggish gross margins, even though the company is about to post its first-ever back-to-back quarters of positive EBITDA.
If you're fretting about the gross margins, you're missing the real story. With marketing costs slashed this year, Overstock is paying a fraction of what it used to pay in customer acquisition costs.
And what's with the Montgomery Ward comparison? Is Michael implying that Overstock.com will only last 129 years because it's not a leader in its niche? I'll take that -- and I'll top it by pointing out that Overstock is a leader.
Online shoppers know they can turn to Bluefly (Nasdaq: BFLY) for fashion and Drugstore.com (Nasdaq: DSCM) for pharmacy goods. Is there a bigger brand in standalone closeouts, clearance, and overstocks than Overstock.com? I love places like Woot.com, and most e-tailers have their sale bins, but Overstock is the brand.
Why else would folks keep coming, long after the costly "It's all about the O" campaigns have been deep-sixed?
In the real world, I know I can get some marked-down buys at places like 99 Cents Only (NYSE: NDN) and Duckwall-ALCO (Nasdaq: DUCK), but the fact is, I wouldn't want a lot of that stuff. Overstock carries the good stuff; visiting the site is like walking into a 70%-off-everything fire sale at Sharper Image (Nasdaq: SHRP) or Williams-Sonoma (NYSE: WSM).
Michael didn't address the company's forays into higher-margin areas like consumer auctions and lead generation, which isn't fair because he does portray online retail as a low-margin cutthroat sector.
Like most bears, Michael is more preoccupied with Byrne's imagination than Overstock's potential. It's a pity, because he's missing the show for the sake of the sideshow. Do bears even realize that some of the more bullish analysts expect Overstock to turn an actual profit next year?
Of course not. That would make them happy, and we know Overstock bears will never be happy ... wait for it ... until they cover their naked shorts.
Byrne, baby. Byrne.
Wait! You're not done with this Duel. Go back and read the other arguments, then vote for a winner.
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