One of last week's biggest losers is also one of the biggest winners over the past year. Shares of Overstock.com (OSTK 1.33%) plummeted 25.2% last week, falling back after a poorly received quarterly report, weak near-term outlook, and unflattering update on its crypto platform. Shares of the online retailer had more than tripled over the past year just ahead of last week's slide.
The stock was already weak before its deflating fiscal fourth-quarter update. Shares of Overstock had fallen for six consecutive trading days before bouncing back yesterday. Leave it to Overstock to be a rebel, finally rising on Monday when most of the market sold off.
A lot on its plate
Its fourth quarter was a rough one for Overstock. It posted a loss during the seasonally potent period and a 13% decline in revenue, to $456.3 million, since the prior year's quarter. The deep discounter blames the shortfall on Wayfair's (W 1.13%) cutthroat ways and a lack of organic search traffic following a Google search algorithm tweak.
Overstock is in the process of exploring strategic alternatives, and that may include the sale of its flagship e-commerce assets. It's going to be a hard sell. Overstock is bragging that this is only the second time in the past nine years that its e-commerce business checked in with a pre-tax annual loss, but it's going to be hard to smoke out suitors when you're losing market share to Wayfair and the search gods aren't smiling kindly on your organic relevance.
The near-term outlook is mixed. Overstock is bracing investors for a pre-tax loss of $50 million -- $35 million in e-commerce and $15 million in its blockchain-fueled Medici -- for the current quarter as it invests in a return to top-line growth. The irony here is that Overstock is mocking Wayfair for its red ink and aggressive marketing, but it now seems to be taking a page out of the same playbook.
Bulls will argue that Overstock's e-tail operations don't matter. The appeal of the stock lately has been its pioneering efforts in crypto. The stock soared 276% in 2017, propelled by the potential of its blockchain enterprises under Medici and its related cryptocurrency products. However, a potential setback on that front materialized in Thursday night's filing as the Securities and Exchange Commission's enforcement division is conducting an investigation. The division is requesting information on Medici and the investigation may delay Overstock's tZERO security token offering.
Wall Street hasn't turned it back on Overstock. DA Davison analyst Tom Forte is lowering his price target from $110 to $100, but that still suggests the shares more than doubling from here. He feels that Overstock's legacy e-commerce business is worth between $48 and $58 per share, with a $52-per-share price tag for its Medici Ventures. His value on the crypto front is open for debate, but Forte's value on its original merchandise retailing business seems like a big reach. Overstock began trading last year at $17, and its e-commerce operations went on to post a net loss and a slight decline in revenue.
How is that business more than three times as valuable now, a year later with Wayfair smoking, losses mountain, and Google searches for its wares smarting? We'll find out soon enough if Overstock does find a buyer for its legacy business, but just as 2017 played out, it's still at the mercy of investor interest in blockchain technology and cryptocurrency to fuel its direction in 2018.