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Why Overstock.com Inc. Fell Sharply Friday

By Daniel Sparks – Mar 16, 2018 at 12:43PM

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Competition heats up and blockchain efforts face headwinds.

What happened

Shares of e-commerce company Overstock (OSTK -4.02%) were getting slammed on Friday, falling as much as 16.4%. The stock is down about 11.3% as of noon EDT.

Overstock's pullback follows disappointing fourth-quarter results. In addition, Overstock said its blockchain efforts could be adversely impacted by an SEC investigation related to the company's planned tZERO security-token offering.

A chalkboard sketch of a stock price falling

Image source: Getty Images.

So what

Overstock's fourth-quarter revenue fell 13% year over year to $456 million, swinging the company to a pre-tax loss of $24.9 million, versus a pre-tax profit of $3.9 million in the year-ago quarter. Overstock also reported a pre-tax loss for the full year, to the tune of $47.7 million.

Overstock cited competition from e-commerce company Wayfair as the reason for its challenges during the quarter.

Beyond this challenging environment for its core business, Overstock warned investors about how an SEC investigation could create difficulties for its business: 

In February 2018, the Division of Enforcement of the SEC informed tZERO and subsequently informed us that it is conducting an investigation and requested that we and our affiliates, including Medici Ventures and tZERO, voluntarily provide certain information and documents related to tZERO and the tZERO security token offering in connection with its investigation. We are in the process of responding to these document requests and intend to cooperate fully with the SEC in connection with its investigation, which will require the time and attention of tZERO and our personnel, and may have an adverse effect on our ability to focus attention on our businesses and our ability to raise capital. In addition, the investigation could result in a delay of the tZERO security token offering, negative publicity for tZERO or us, and may have a material adverse effect on us or on the current and future business ventures of tZERO.

Now what

As Overstock works through its investigation with the SEC, management said it will focus its core e-commerce business on growth, using what Overstock CEO Patrick Byrne refers to as a "classic internet growth strategy." This strategy fundamentally consists of high growth and negative GAAP net income, and will be funded by Overstock's negative cash conversion cycle, Byrne said, adding, "We have already turned on the jets, and will demonstrate this year that our growth engine is far more efficient [than Wayfair's]."

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Wayfair. The Motley Fool has a disclosure policy.

Stocks Mentioned

Overstock.com Stock Quote
Overstock.com
OSTK
$24.57 (-4.02%) $-1.03

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