David and Tom Gardner recently interviewed
Overstock.com
TMF: Patrick Byrne, we have talked some about your company, Overstock.com. Let's talk now about the industry a bit more. Rank the following companies in terms of, let's call it the competitive threat that you think they pose to your company, and I have got four of them for you: Costco
Byrne: eBay is unbelievable. It is a fantastic business model and they have superior management. Probably the best management in the industry. Certainly better than Overstock's. I know Jeff Jordan and Meg Whitman. They are adults and I have met a lot of other players in the industry and they are not adults.
After that, Costco. Costco has a fantastic model. They service the consumer beautifully. They haven't really made a big push into the Internet, but when they do, they will be a player. They will be a real player and they have a lot of just the right skills. They don't yet have the cataloging and pick, pack, and ship stuff, but they will get that down.
TMF: OK, how about Bluefly and Amazon?
Byrne: Bluefly is strong. They have George Shoreham behind them. Their specialty is apparel, but they are very good on apparel. They have gotten all the nuts and bolts down quite well. I have to give them credit, gotta give them props. They have made big improvements in the last couple of years.
Then Amazon, I would put...
TMF: You are putting Amazon fourth, I gather?
Byrne: Well, you have got to put somebody fourth. I put Amazon fourth, although I do see them as our most direct competitor.
TMF: But in terms of a threat, you don't regard them as much of a threat as the other three?
Byrne: Well, they are our most direct competitor, but they just stand for... it is very hard for me to judge them. They stand for everything to which I am philosophically opposed. They are the essence of the new economy. They owe people $5 billion. Here we are trying to run our business like an old-fashioned hardware store and they are out there, they have just done everything "new economy." They are from such a different world and it is a world I don't give any credit to.
And yet all that said, they have made real improvements in the last two or three years in a number of areas. They got some adults into the business who started managing the logistics and made certain aspects of it better.
TMF: So that $340 million in free cash flow they generated last year and their $20 billion valuation, that doesn't impress you?
Byrne: Well, the $340 million in free cash flow is terrific. They can use that to pay back some of the $5 billion they owe people. Their valuation, I look at it this way. It is 80 times or so our valuation. They are about nine times our size now in North America, on their way to five times. I'd love it if their valuation stays up at $20 billion because at some point, if we catch them in size and we are more profitable...
TMF: You are talking about sales there, by the way, right? When you say nine and five, the actual number of the sales?
Byrne: Yes, I am talking about sales. I love them having that valuation because it means that we are a fifteenth of their size overall and by the end of this year a tenth.
TMF: And you are undervalued.
Byrne: Well, I can't say anything like that. I hope Amazon goes to $100 billion in valuation because it is just going to be good for us.
Tomorrow: Why some Wall Street bankers are bad guys.
