Don't look so shocked
Oh, come on, I know you're not surprised.
I'll make this a short story (pun intended). Here's what I think: This is a bad business run by a poor leader, Patrick Byrne.
Flame, meet wads of cash
The recent private placement (shares, at least in part, apparently sold to a short-attack-simpatico of Byrne's, Prem Watsa) only proves what I've been saying for a long time: This company is a cash burner, and it needs access to the public market to survive. That, of course, is precisely why I believe Byrne has never taken the outfit private. Who would pump dough into this company for shares that couldn't be flipped back onto the markets when the whim strikes?
The latest earnings release puts the last nail in this coffin. In early 2006, Byrne suggested that Overstock would be close to breakeven on a cash flow basis if it simply stopped spending so much on growing the top line, let off the gas, a little bit. Q3 showed that his outfit is a money sink even with declining revenues.
Words, not deeds
What's CEO Patrick Byrne's response to the operational horrors?
More of the usual. A few apologies. How about adding a few more tabs to the Overstock home page? Maybe an auto listing or a social-networking scheme? Yeah, I'm sure eBay (Nasdaq: EBAY ) and News Corp. are quaking. Just as Blue Nile (Nasdaq: NILE ) was when Overstock entered the online diamond biz, from which it now appears to be making an ungraceful exit -- according to that same private-placement filing linked above.
Once that's out of the way, Byrne's back to blaming the stock's fall on the short/naked short/hedge fund/Sith Lord/crooked journalist/overseas mafia conspiracy. Right after those dismal Q3 numbers, he was doing an interview with a rent-an-analyst outfit that touts penny stocks.
In August, he appears to have hired as "director of social media," Judd Bagley, a former Jeb Bush speech writer whose other talent seems to be producing naked-short conspiracy propaganda, including some crazy and profane Web-based attacks on those who've spoken out against Overstock. (A nod to Gary Weiss' blog for providing those interesting tidbits. And if that video is no longer at Bagley's website, I've got a copy archived for posterity.)
Foolish bottom line
None of this surprises me at all. We're talking about a CEO who lashes out at anyone critical of his performance. Once, on our Fool boards, he suggested -- without so much as a thread of evidence -- that I was taking bribes from some member of the anti-Overstock conspiracy. When that post was removed by our moderators, he then lashed out at all of Fooldom, and bid us adieu, writing:
"More and more I came to feel that the Fool had been infiltrated by representatives of the bad guys & I figured I would do a last poll to ask, how many others suspected that the Fool had been corrupted as well? There were several shills on the board at that time I posted the poll, adn [sic.] they all immediately answered that I was a nut (one of the possible poll responses). But as the evening wore on, we got around to the point that well over 50% believed the Fool had been cirrupted [sic.] and my antagonists there were shills. Sometime the next day, as I knew would happen, the shills were able to organize getting as many of the shills to come vote against the propoisition [sic.] that the Fool board had been corrupted (the disparate voting by time of day was astonishing and not statistically likely), but even with that, fully 36% of the Fools now believe their environment has been corrupted by shills."
See how nifty that works? When people voted with Byrne, it was evidence he was right! When the tide turned, it was evidence of a shill conspiracy, so Byrne got to be right either way!
I'm sure this kind of mental exercise is a wonderful way to justify aberrant behavior, but it's no way to run a company. On viewing these antics, one of my Fool colleagues -- who was once long the stock, as I was -- put it thusly: "This guy isn't qualified to run a lemonade stand."
I agree, but I don't think even a good CEO could turn around the mess at Overstock. Turns out selling stuff at a loss over the Internet isn't very original, nor is it such a great business. And finally, complaining that investors gave a substantial free pass to Amazon.com (Nasdaq: AMZN ) , as Byrne often does, isn't the same as offering them a profitable alternative.
Thumbs down.Way down.
Click here to sign up for CAPS and make your own view known. If you agree with me, rate Overstock an 'underperform'. If not, give it an 'outperform.' We'll be choosing the dubious winner of our worst stock contest during the beginning of next week.
Want to go back to the beginning of our Worst Stock for 2007 tournament? Right this way.
At the time of publication, Seth Jayson had no positions in any company mentioned here. View his stock holdings and Fool profile here. Amazon and eBay areMotley Fool Stock Advisorselections. Blue Nile is aRule BreakersandHidden Gemspick. Overstock.com was a former Rule Breakers selection. Fool rules are here.