"If you want chopped wood, run the chainsaw, not yer mouth."
-- Wu Laski, Iron Range philosopher
Forward-looking statements
I suspected this would happen, months ago, when I took the fateful step of breaking from Fooldom's overly (and overtly) adoring stance on Overstock.com
In "A Dozen Questions for Dr. Byrne," I figured one of my more important queries to be No. 6, the one about why he didn't just take Overstock private. I assumed the reason was simple: Overstock would need access to the public capital markets to obtain cash so it could continue running its money-burning operations. Heck, back then, I even thought Byrne might have the guts to admit it, because even a casual observer of Overstock's cash flow statement could see the ride toward zero.
Turns out I was wrong about that "admitting it" part. Instead of coming clean, the "most transparent CEO in America" dodged the question with the peculiar assertion that he had already taken Overstock private. "We did," he claimed, and then turned the topic back to his preferred red herring, naked shorting, with a specious line about not wanting to be forced to have to purchase another 3% to 70% worth of "counterfeit" shares.
I commented on the firm's dwindling cash position a while back, as have many other observers. Back in January, in some now-famous sparring with Business Week and New York Post reporters on Bob "The Easter Bunny" O'Brien's weblog, Byrne said, "I think our liquidity is fine" and "No plans on raising capital; in fact, I'm always thinking of buying stock back." And then he implied that those who ask about it were working from some "sloppy" script. (I presume the scripts must be supplied by the leaders of the nefarious cabal that he imagines is out to ruin Overstock.)
The numbers don't lie
Well, with the end of April came yet another losing quarter for Overstock. The numbers are here. I won't belabor them. They're wicked ugly, with a measly 8.6% increase in revenues giving way to a net loss that jumped from a loss of $0.22 per stub to an $0.82 loss. Worse yet, Overstock used $79.6 million in free cash flow for the quarter, topping the $48.2 million burned in the prior-year quarter.
Despite this, with only $51.8 million in cash and short-term investments on the balance sheet, Byrne told the conference-call listeners something that sounded familiar: "I think we are fine for this year, as far as cash goes." (Of course, this was after regaling the crowd with macho stories about his comfort level for doing "barrel rolls" close to the ground.)
Only a few days later, we got evidence that suggests Byrne's not quite as comfortable with those barrel rolls as he claimed.
Cash? Who needs cash?
On May 2, Overstock announced it had placed more than a million shares with a private investor at $24 a pop. As already pointed out by one of our Fool community members, this is a pretty odd state of affairs given what Byrne claimed on April 28. It's even stranger once you recollect that Overstock has spent tens of millions of dollars to repurchase stock -- at much higher prices -- over the past months.
Buy high, sell low? That's a recipe for financial failure in my book. But then so is a CEO who engages in a "crusade" (he's changed the name from "jihad") against just about anyone and everyone who has ever criticized Overstock.
I maintain my belief that this is a smokescreen designed to distract investors from paying attention to fundamental questions about the company. You know, little things such as, "Can Overstock actually grow without spending its way into oblivion?"
Even if you come up with a "yes" to that one, there's a thornier bit of self-reflection required: "How much am I willing to pay for an increasingly unprofitable company with 9% revenue growth, especially when it competes with everyone from Amazon.com
Foolish bottom line
On the financials alone, I think this company's a goose egg. Factor in Byrne's continued attempts at Jedi mind tricks -- like the latest conference-call opener (the "crusade"), the "we are fine for this year" comment, or the now classic "Overstock.com Overstocked with Bargains!" press release that was the Friday-night intro to the company's major tech failures -- and you can see why I think the company is doomed under his leadership. Now that he's both CEO and board chairman, I think the chances that things will change have gone from bad to worse.
Seth Jayson keeps his tinfoil hat close at hand. At the time of publication, he had no positions in any company mentioned here. View his stock holdings and Fool profile here. Amazon.com, eBay, and Costco are Motley Fool Stock Advisor recommendations. Fool rules are here.
