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Overstock Adds Context to Its Bold Growth Forecasts

By Demitri Kalogeropoulos – Updated Apr 14, 2019 at 5:09PM

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The company made some big promises to investors this past week. But can it deliver?

Overstock (OSTK 1.51%) just closed out a difficult fiscal year that included mounting market-share losses in its core e-commerce retailing division and only a little progress in profiting from its blockchain technology initiatives. Yet executives predicted much stronger results ahead in both departments.

In fact, in a conference call with Wall Street analysts, and in a presentation posted subsequent to the earnings report release, CEO Patrick Byrne and his team outlined a plan for returning the retailing business to profitability in 2019 for its first positive outing since 2016. Management also expressed lots of optimism about the potential for blockchain technology despite collapsing valuations for many of the most popular cryptocurrencies.

Below are a few highlights from Overstock's investor presentations.

Check out the latest earnings call transcript for Overstock.

A graphic of a man interacting with a security platform.

Image source: Getty Images.

Surviving a huge retailing setback

We've never seen a business take a hit like this in its organic traffic and survive.
-- Byrne

After almost two years of painful declines, Overstock's retailing business finally made a positive contribution to earnings in the fiscal fourth quarter. That improvement wasn't enough to save the broader fiscal year, but it did mark stabilization in a segment that had been in deep retreat since early 2017.

Executives singled out the heavy marketing and development spending by rival Wayfair (W -0.81%) as a key reason Overstock's product pages fell in search-engine rankings this past year. In that way, they said, the company's latest retailing results demonstrate a path forward for this segment. Overstock isn't likely to approach anything like the 40% sales growth Wayfair has been enjoying lately, but its product search rankings are improving. Thus, management thinks they can now operate the business profitably even with aggressive industry competition.

Making big financial promises

We know this recovery plan that we announced in Q3 and that you're seeing actualize in these results makes the [retailing] business more attractive to the buyers with whom we're speaking and as we continue to work with them to find the right deal.
-- Chief Strategy Officer Seth More

Executives had no updates for investors on progress in the company's talks aimed at selling off its retailing segment so that Overstock can focus on the more promising blockchain division. Yet they predicted that their rebound progress will very soon start to show concrete results in terms of reduced expenses and better operating profits. These gains, they said, should help them achieve better terms with potential buyers, if a deal is actually struck.

Management cautioned that they have to operate the business as if they won't sell it, which is a distinct possibility. In any case, executives predicted a quick rebound in key financial metrics culminating in far stronger profitability in 2019. "You're not going to have to wait the whole year to check me on this," Byrne claimed. "By the end of the first quarter," he continued, "you're going to see us approaching those kinds of [high double-digit growth] rates" in segment earnings.

Bigger wins ahead

This is our calculation that shows why we have devoted so much effort and capital to this project because we think it is a very, very large payoff that we are pursuing.
-- Byrne

By management's very rough calculations, blockchain technology could eventually support the tokenization of trillions of dollars of assets including real estate, stock markets, and currencies. They have a head start in building a foundation for these networks through the tZERO and Medici Ventures subsidiaries, too, which has Overstock feeling increasingly confident that they're building valuable tech resources right now.

Its blockchain segment hasn't posted a profit yet and is still just a tiny fraction of overall operating revenue. Thus, investors are justified in taking a "show me" approach to management's bold growth claims. With its crypto trading set to launch this summer, and with the retailing segment facing tough selling conditions, Overstock will have plenty of opportunities to back up its 2019 predictions with concrete numbers over the next few quarters.

Demitrios Kalogeropoulos 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.

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