Overstock.com Inc. shares sank Friday after the online discount retailer reported a narrower second-quarter loss, but an analyst downgraded the stock, saying the company's revenue growth may drop by 2009.
Overstock shares fell $10.20, or 36.8 percent, to $17.50 in midday trading. In the past year, the stock has traded between $8.61 and $39.39.
Overstock said Friday morning that it lost 28 cents per share on revenue of $188.8 million in the quarter.
The company added more than 500,000 customers in the quarter, which Overstock attributed mostly to its marketing efforts.
Sales and marketing costs rose 79 percent year over year to $14.2 million. Overstock's customer acquisition costs climbed 36.6 percent to $27.61.
In a note to investors, Stifel Nicolaus & Co. analyst Scott Devitt downgraded the stock to "Sell" from "Neutral." He wrote the company's revenue has grown more than 20 percent year over year for the past two quarters, but the retailer faced easy 2007 comparisons. Revenue growth "could drop to the low-to-mid teens by 2009" he said.
He also noted that the company's model _ which now includes selling more traditional retail merchandise rather than excess goods _ might never raise operating margins above 2 percent to 3 percent at scale, which is far lower than the 8 percent he expects in the long term for Amazon.com Inc.
In a phone interview Friday, Overstock Chief Executive Patrick Byrne said that economic weakness, while leading consumers to tighten their belts, can also help companies like his.
"When you enter a downturn, that's actually when middle class people seek to retain their standard of living and switch to discount shopping. So the downturn may actually push people toward Overstock to stretch their budget," Byrne said.
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