Online liquidator Overstock.com (NASDAQ:OSTK) reports its third-quarter 2007 earnings Friday morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Seven analysts follow Overstock, but the number's far from lucky. Five think you should hold it, and the other two say to sell.
  • Revenue. On average, they're looking for sales to slip 2.3% to $155.1 million.
  • Earnings. The firm's per-share loss is predicted to contract to $0.39.

What management says:
Give credit where it's due: Overstock may not be reporting profits yet, but at least it reports its lack of profits with style. It's not often you see a CEO sum up his quarterly results with a line like this: "Two years is long to hold one's breath, but sweet indeed is the air of $14.9 million positive operating cash flow."

What management does:
Of course, the fact remains that we invest in stocks not to crusade against the evils of naked shorting, but to own a part of profit-making enterprises. To date, Overstock has not been one of those. It's not yet in the league of profitable e-commerce firms like Amazon (NASDAQ:AMZN), eBay (NASDAQ:EBAY), or Priceline (NASDAQ:PCLN).

Margins

3/06

6/06

9/06

12/06

3/07

6/07

Gross

14.3%

14.1%

13.8%

12.0%

12.5%

13.2%

Op.

(3.9%)

(5.1%)

(7.0%)

(11.2%)

(11.1%)

(10.2%)

Net

(4.5%)

(6.1%)

(7.7%)

(12.9%)

(14.0%)

(13.9%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
 GAAP accounting rules don't yet permit Overstock to report a profit, but Foolish investors know: There are profits, and then there are profits. The kind of profits we prefer to see -- the cash variety -- are beginning to emerge at Overstock. In the last reported quarter, the firm generated $14.9 million in cash from operations, before laying out $1.4 million of that on capital expenditures. That reduced the negativity of the year-to-date free cash flow to $45.2 million.

In Friday's report, we'll be looking for that trend to continue. We want to see cash profits piling up, because whatever the GAAP numbers say, cash profitability remains the true measure of a business's health.

Granted, the stock that represents the business on the Nasdaq will probably be more influenced by how the market perceives the report, and whether Overstock's flamboyant CEO can spin the news so as to spook short sellers into a panicked "short squeeze." (Alternatively, if the news is too bad to spin, the stock could even give up some of its gains from over the last year.) Long-term, though, it's the cash that counts.

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