Shares of online retailer Overstock.com (BYON 4.65%) rose dramatically at the open of trading on Jan. 26. In the first half hour or so the stock gained roughly 28%, a huge move for any company. Although this type of volatility has actually been common in recent days thanks to so-called short squeezes, there was company-specific news that likely precipitated Ovestock.com's dramatic move.
After the closing bell on Jan. 25, Overstock.com announced that it had agreed to partner with Pelion Venture Partners in the blockchain space. Although the retailer's main business is selling things via its namesake online store, it has long had a division called Medici Partners that invests in smaller ventures, notably in the blockchain space. With blockchain-based investments gaining increasing attention on Wall Street, this relatively small division has taken on increased importance among investors. That said, it would be easy to argue that the business was a distraction from the company's core retail operations. Taking on a partner makes good sense.
Under the agreement, Medici will be converted into a limited partnership that Pelion will oversee. Overstock.com will be a limited partner in the entity, which is expected to have an eight-year life. Pelion will get paid an annual fee of $2.5 million plus incentive bonuses based on performance. It is expected to take three to six months before this arrangement is fully approved and put in place. This move will, presumably, help to unlock additional value for Overstock.com shareholders, while allowing the company to focus more of its attention on its core retail business.
Although blockchain is a hot technology right now, long-term investors should tread with caution here. Overstock.com shares are up more than 900% over the past year. And the price move on the current news seems to price in even more positives. It's entirely possible that this tree grows to the sky, but it's probably prudent to remember that what goes up often comes down equally hard on Wall Street.