What happened
Stock in Overstock.com, Inc. (OSTK 2.24%) fell 19% last month, according to data from S&P Global Intelligence .
So what
Overstock released first-quarter 2017 earnings on May 4. Despite a 5% improvement in revenue to $432.4 million, the company posted a net loss of $5.9 million, versus a profit of $13.4 million in the comparable 2016 quarter.
Management attributed the loss to an $8.0 million impairment charge related to its Medici blockchain business. Medici is an intriguing side project for Overstock and its CEO, Patrick Byrne. The business is a fledgling decentralized stock exchange built on blockchain technology, using bitcoin as a transaction medium. In contrast, the company's core online retail business generated a $1.4 million profit during the quarter.
Image source: Getty Images.
Though volatile, Overstock shares have essentially produced flat results for investors over the past three years. Perhaps because of this, during the company's earnings conference call, Byrne and fellow executives used most of their time to address what Byrne called "the elephant in the room": surging competitor Wayfair Inc. (W +0.00%).
While it's highly unusual for an executive team to provide a detailed analysis on a single competitor during its own earnings call, Overstock's management nonetheless worked through a slide presentation highlighting differences between the two corporations. Overstock's leadership essentially admitted that some of the company's potential growth and market share had suffered at the hands of Wayfair over the past few years.
Yet Byrne pointed out that Overstock's business model doesn't sacrifice top-line growth for profitability. He also questioned Wayfair's outsize advertising and marketing spends: Wayfair spends nearly $0.90 per customer visit, versus $0.30 for Overstock, meaning it costs Wayfair three times as much to attract a visitor to its platform versus Overstock.
Management promoted other advantages it believes Overstock enjoys over Wayfair, including higher quantified customer loyalty, a richer contribution per dollar of incremental sales, and Overstock's more efficient supply chain. Ultimately, Byrne and his team contrasted Overstock's slower growth but profitable business against Wayfair's current model, which accepts significant annual losses in favor of market share expansion.
Now what
Maybe Overstock's unusual analysis of a direct competitor's economics allayed investors' concerns a bit. In the first two weeks of June, Overstock shares have regained nine percentage points of the previous month's drop. Wayfair's rapid growth and popularity among online shoppers has cast a cloud over this stock for some time. Thus, management may continue to vocally make the case for Overstock, which it considers, by virtue of predictable profits, the superior corporation.
