What happened
Shares of Overstock.com (OSTK +6.02%) gained 37.2% in August 2017, according to data from S&P Global Market Intelligence. The surge started with a solid second-quarter report and some management comments pointing to the possibility of a buyout exit strategy.
So what
Overstock's share prices rose 5% on the second-quarter report, delivered in the first week of August. Sales rose 3.2% year over year to $432 million despite a strong headwind from changes to Overstock's search engine optimization tactics. Bottom-line losses increased from $0.04 to $0.29 per share due to the launch of a blockchain-based stock trading platform known as t0.
On the earnings call, CEO Patrick Byrne also made it clear that he is open to a merger or buyout under the right conditions. Many companies are being disrupted by larger e-commerce platforms and desperately in need of an online strategy.
"For those companies, what we have built can be a tremendous solution," Byrne said. "And they're companies who, in my view, couldn't build this in 50 years, couldn't build the technology and the sophistication and stuff. So we're a wonderful answer to those companies."
He would also consider private equity deals "at or before the end of this year," so there's a short fuse on this potential buyout idea.
This one-two punch became the starting point for a steady surge in Overstock's share prices throughout August. Analysts are beating the buyout drum, and investors have been happy to dance to that beat.
Overstock investors are excited about the possibility of a quick buyout. Image source: Getty Images.
Now what
If nothing else, Overstock could give any retailer an instant strategy for exploiting bitcoin and other cryptocurrencies. The company has been a leader in that space for years, accepting bitcoin payments before it was cool and creating its own blockchain-based securities trading platform. In August, Overstock also struck a deal that will allow shoppers to pay for their Overstock orders in a wide variety of cryptocurrencies not named bitcoin.
So the company's annual sales of $1.8 billion is a drop in the bucket for many of the traditional retailers Byrne was talking about, but an Overstock buyout might make sense from a technological angle. It's difficult to pin a realistic buyout value on a company with negative earnings, cash flows, and EBITDA profits but Overstock's $605 million market cap and nearly debt-free balance sheet would make it an easy mouthful for many of those supposed suitors.
So you could roll the dice on a quick acquisition here, or you could wait for the buyout fever to settle down before taking a more sober look at this interesting e-tailer. Personally, I would prefer to wait and see.
