It would be nice if past growth reliably predicted future growth. That would mean (NASDAQ:OSTK) could continue to grow like gangbusters. Yet such rapid growth rarely lasts. For every booming (NASDAQ:AMZN), there are a dozen companies like Red Envelope (NASDAQ:REDE) that see their growth fizzle out.

Overstock's growth has already faltered. CEO Patrick Byrne's prediction back in 2005 that the company would achieve $2 billion in revenue in 2007 now looks absurd --analysts estimate that the company will have just $780 million in revenue this year. That's actually lower than last year's $788 million in sales.

Rick thinks that Overstock can become successful by diversifying into auctions, travel, and other non-core businesses. There is just one problem with this scenario: In each of these areas, would be competing against better and more established companies, such as eBay (NASDAQ:EBAY) in auctions and Expedia (NASDAQ:EXPE) and (NASDAQ:PCLN) in travel. Overstock has already proven that it can lose money in travel, having sold its OTravel segment last April for $7 million less than the $25 million it had paid for the business less than two years earlier. remains unprofitable. While Patrick Byrne and Rick highlight the positive EBITDA figure from Overstock's third quarter, the company still had an operating loss of $4.9 million in the third quarter. Only after taking out $7.1 million of depreciation and amortization expenses was the company "profitable."

Roughly half of Overstock's depreciation and amortization costs are from the amortization of internal-use software and website development. capitalizes costs related to developing software to enhance and upgrade the website, then depreciates them over a three-year period. This accounting seems somewhat aggressive relative to's policy to amortize over two years.

The company's future investment in developing its website and internal software may be even more troubling. While has capitalized $97 million upgrading its website and internal programs over the last nine months ($92 million during the same period in 2006), spent only $1.7 million over the last nine months (compared to $19 million in the same period in 2006). I know that touts its ability to cut costs, but for a company planted firmly in the competitive e-commerce space, software upgrades and website development are important factors.

Overstock's sales have stagnated. It remains unprofitable. It is not spending enough to upgrade its website and software. Even if I could ignore Patrick Byrne's obsessions, I could not ignore the failings of the company he leads.

 Wait! You're not done with this Duel yet. Go back and read the other arguments, then vote for a winner.

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Fool contributor Michael Goode is an investor who lives in St. Louis. His idea of a good time involves hot chocolate and heavily footnoted financial statements. He prefers to read the financial statements while drinking the chocolate, but when he saw Overstock's poor earnings, he chose to read the hot chocolate instead. He has no position in any company mentioned. The Motley Fool has a disclosure policy.