I know that Overstock.com (NASDAQ:OSTK) CEO Patrick Byrne is colorful. Since that fact is bound to come up in Michael's bearish argument, I may as well bring it up first.
The company issued a press release last week, rekindling the naked-shorting accusations that have come to define Byrne's rage against the trading machine. He's colorful even in the timing of the release, pointing out how Overstock shares have spent the past 669 trading days on the Regulation SHO Threshold list.
From Sith Lord conspiracy theories to drumming up Satan, Byrne loves to paint his enemies in broad, villainous strokes.
Some investors may prefer their CEOs a little more vanilla-bean than Byrne, but I don't mind. I met him once, and he's far more impressive in person than he is anecdotally. More importantly, despite the demonic theatrics, he has the company heading in a more righteous direction.
This past quarter was an important one for Overstock. It was the first time that Byrne's company posted positive EBITDA outside of the seasonally potent holiday quarter. Despite slashing sales and marketing expenses nearly in half, the company squeezed out a 3% gain on the top line. The reported loss of $0.20 a share was half the red ink that analysts were expecting (and a fifth of the previous year's deficit).
That's the kind of momentum you love to see heading into the holidays. Sure, Overstock isn't flat-out profitable like Amazon.com (NASDAQ:AMZN) or Blue Nile (NASDAQ:NILE), but it is gradually working its way to the big-boy table.
I know Byrne had a cautionary tone as a guest on CNBC two weeks ago. Despite working on "a pretty nice Christmas," with quarterly sales trending 10% higher, Byrne warned that aggressive discounting would drive gross margins lower. The online retailer will still post an EBITDA profit, though bottom-line results will hover slightly below the breakeven mark.
That took some of the steam out of my October argument that had me casting Byrne as the CEO version of Randy Moss, a problematic specimen of raw talent who was finally starting to produce in 2007.
However, there is still plenty of steam left to fuel this engine. Even with Byrne blinking amber, analysts have gone from projecting a 2008 loss of $0.58 a share at Overstock to expecting a mere $0.14-per-share deficit.
Overstock is coming together, the same way that Amazon did when it had more doubters than believers. Those who see Overstock as a profitless virtual version of Big Lots (NYSE:BIG) or Tuesday Morning (NASDAQ:TUES) are missing the point.
Overstock is transforming itself into more than just an online retailer. Diving into high-margin areas like auctions, travel, and providing leads for auto showrooms, Overstock is making the most of its digital fortitude, taking pages from the playbook of companies like eBay (NASDAQ:EBAY) and Autobytel (NASDAQ:ABTL).
These forays would seem like silly pipe dreams if not for the company's shrewd cost-cutting in its flagship e-tailing business. This is starting to feel like Amazon all over again.
Remember when Amazon was the laughingstock of the bear cave? Now the company is deliciously profitable year-round, despite still championing many of the features -- like subsidized shipping and rock-bottom pricing -- that had cynics tripping over themselves to dead-pool the stock.
I'm not Byrne. I don't believe that it's just Sith Lords and Satan betting against Overstock. However, the company is transforming itself into an organization that disillusioned bulls long gave up believing it could ever become. Given that, it's hard not to like Overstock's turnaround chances.
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