If you like apologies, chances are you'll enjoy the latest earnings release from Overstock.com (Nasdaq: OSTK ) . This time, CEO Patrick Byrne's copious gomensnasai came in English (mostly), but the result for shareholders is the same: more red ink on the bottom line, in direct contrast to the hoped-for "breakeven."
Of course, we don't actually know what the quarterly negative comes to, because the firm declined to provide a bottom line for Q4. This was blamed on uncertainty regarding the implementation of a policy of capitalizing freight costs, then expensing them as product is released. This will eventually have the effect of smoothing Overstock's numbers over the pre- and post-holiday season. Some folks consider this kind of financial contortionism to be a red flag. It's probably no stranger than Overstock's $50 million Asian currency hedge-that's-not-a-hedge. It's curious, and it says something interesting about management, but it's not overtly dangerous.
For the year, the red ink came to $1.29 per share, against a negative $0.29 per share the prior year. The growing loss came despite 63% revenue growth. Gross margins did improve, so mark one on the plus side. But that gain couldn't stem the flow. The latest scapegoats were familiar -- too much tech spending, upgrades performed at inopportune times, a 33% increase in customer acquisition cost. It all meant big expenses, as well as losses in revenue during the crucial holiday runup.
The new news here is growth -- or rather, the relative lack thereof. In the past, in response to questions about when Overstock might become profitable, Byrne has often responded with another question, something along the lines of "When do you want us to stop growing the top line at xx% rate?"
In other words, "Quiet on the profits, you! We're busy building a sales juggernaut." Although the conference call had the requisite graphs showing Overstock appearing to gain on Amazon.com (Nasdaq: AMZN ) and eBay (Nasdaq: EBAY ) , investors should temper their expectations.
The goal now is to grow on the top line at the "industry rate." The stated reason is that the company needs a rest or "rehabilitation" from hypergrowth. Conveniently enough, that should, according to this morning's story, bring the firm closer to breakeven on a cash flows basis.
I can't say this turn of events surprises me, especially as Overstock's cash hoard has dwindled from $198 million to $56 million over the past year. Between operations and capex last year, Overstock burned $51 million in cash, and that's before the $24 million Ski West acquisition. Obviously, things can't continue like that forever.
The questions for investors are: "Does the strategy make sense?" And "Can Overstock pull it off?"
The answer to one is, I think, a provisional yes. If you ain't got the money, maybe you shouldn't spend it. It's number two I waver on. The record shows, once again, that Byrne is better at making promises than delivering. What makes anyone think the upcoming quarters will be any different from the last?
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