Overstock Is No Patriot

I was wrong.

Three months ago, I compared Overstock.com (Nasdaq: OSTK  ) CEO Patrick Byrne to Randy Moss, arguing that both had been reborn on the playing field late last year.

It certainly felt that way after the discount e-tailer generated positive free cash flow during the seasonally forgettable third quarter. It was the first time that Overstock had achieved that feat outside of the holiday-spiked fourth quarter.

Well, Overstock seems to have disappeared -- much the way Randy Moss has in the playoffs -- with this morning's quarterly report.

The closeout specialist's numbers are definitely an improvement. While fourth-quarter revenue inched just 2% higher to $300 million, margins improved substantially on the way to the bottom line, given the company's focus on improving gross profitability and shrewd cost-cutting beyond that. Overstock posted a net loss of $0.18 a share for the period, substantially better than the $1.95 a share net loss from continuing operations a year earlier.

So what's wrong with that prettier picture? Well, Wall Street was looking for a profit of $0.13 a share on $307.8 million in revenue. To be fair, analysts were all over the map. The four analysts offering up estimates were at double-arm distance from one another, with projections ranging from a loss of $0.06 a share to a profit of $0.37 a share for the quarter. The rub is that Overstock fell short of even the bleakest bottom-line target.

One can still admire the report on its own. Overstock has posted positive EBITDA in back-to-back periods for the first time in its colorful history. The company also closed out all of 2007 with free cash flow. It wrapped up the year with roughly $6 a share in cash and marketable securities, even though half of that is offset by the company's $75.6 million in convertible senior notes. Other liabilities whittle down the book value even further.

OK, so Overstock isn't undefeated like the New England Patriots. It's more in the mold of an underdog like the New York Giants, relative to the consistently profitable e-tailers like Amazon.com (Nasdaq: AMZN  ) and Blue Nile (Nasdaq: NILE  ) . I still like the foundation that the company set up in the latter half of 2007. Now that it has its cost structure in check, the emphasis come 2008 will be to grow the top line again. The market seems to agree with me, sending shares of Overstock higher this morning despite the quarterly miss.

Online retail isn't easy. Companies like Drugstore.com (Nasdaq: DSCM  ) , Red Envelope (Nasdaq: REDE  ) , and Bluefly (Nasdaq: BFLY  ) are still battling to turn the profitability corner. However, you don't make it this far out of the dot-com bubble burst if you're not a survivor.

Overstock is definitely a survivor, and a fighter. Is it Randy Moss? No. Is there still time to turn things around the way Eli Manning has in this year's playoffs? You bet.

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