Overstock.com (NASDAQ: OSTK)'s stock tumbled more than 41% on Friday after the company reported its second quarter earnings. But investors looking for an indication of how things are going at the Utah company got a pretty eye-opening look on the company's conference call.
Chairman and CEO Patrick Byrne's answers to questions -- and his repeated pleas to CFO David Chidester for help and Chidester's corrections to Byrne's numbers -- demonstrate a CEO who simply isn't on top of the operations of his company as he devotes countless hours to lashing out at critics and spouting conspiracy theories.
Take a look at these examples from the conference call -- quotes taken from the Seeking Alpha transcript:
Matt Schimler – Merrill Lynch: Also, what percentage then of your direct business is reselling returns? Patrick Byrne: Got to be about a quarter of it. Isn't it Dave? David Chidester: I don't think it's quite that high. Byrne: What is our direct business showing up on a GAAP basis, David, as a percentage of sales? Chidester: It's about 21%.
That's right: the chairman and CEO of a publicly-traded internet retailer doesn't know what percentage of its sales come from the direct business. Can you imagine Steve Jobs' having to ask the CFO what percentage of sales come from the iPod?
Given that Byrne is obviously not to up on the company's fundamentals, you have to wonder about whether his predictions of profitability can be trusted.
Shares of Overstock.com (NASDAQ: OSTK) are down nearly 30% after the company reported second quarter earnings. Revenue rose 27 percent to $188.8 but the company reported yet another big money-losing quarter, with $6.5 million, or 28 cents per share, flying out the door.
One way to evaluate the candor of management is to look at the company's statements in its press release announcing news -- if the company says all kinds of wonderful things about how great everything, but the stock still goes down 30%, it means that you're dealing with people who put lipstick on a pig. Here are some examples of the self-congratulatory tone of the earnings release. "For the first time in its history your business has generated four consecutive quarters of positive EBITDA and TTM operating cash flows. . . Our financial condition is sound despite a weak economy."
There's no mention of what went wrong in the press release, but obviously most people were hugely disappointed with the quarter. One problem for Overstock is that the company's sales and marketing expense ballooned 79% to $14.2 million.
You'll be happy to know that chairman and CEO Patrick Byrne continues to spout nutty conspiracy theories and post on message boards, arguing with anyone who dares criticize him.
Normally when a public company is involved in litigation, it discloses what it must to shareholders via press releases and 8-Ks, and then only material developments. In light of its inability to turn a profit, Overstock.com, Inc. (NASDAQ: OSTK) has taken to issuing press releases announcing the back and forth in its lawsuit against Gradient Analytics, an independent research outfit Overstock CEO Patrick Byrne claims was involved in a campaign to beat down the company's stock.
Interestingly, Overstock has not been filing 8-Ks about these developments, indicating that they really aren't material -- just chest-pounding press releases designed to hype the stock.
Yesterday Overstock put out a press release: Overstock.com Announces Favorable Court Ruling in Rocker/Gradient Case, announcing that a court "ruled favorably on a demurrer brought by Overstock Chairman & CEO
Patrick Byrne
, dismissing on statute of limitations grounds three causes of action, which Gradient had asserted as counterclaims against Byrne personally."
Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne -- sometimes referred to as the clown prince of online retailing -- has never managed to report a profitable year for his company, in spite of years of optimistic projections.
You might think that a CEO would take responsibility for his company's failures after years of over-promising and under-delivering. Heck, he might even lose his job!
But not Byrne, who is also chairman of the board and owns 28.7% of the company. I would speculate that if he did not have such a large stake, he'd have been pushed out years ago. Instead, he uses his place at the helm of a money-losing company to propagate his theory that there is a vast plot against his company, involving naked short selling (brokerages executing sell orders on behalf of short sellers even though they haven't located any actual shares for sale, potentially (theoretically at least) driving the stock down when shareholders aren't selling -- here's more from the SEC on this stuff), crooked journalists, stock bashers, and a sith lord, although he recently conceded the sith lord doesn't exist.
Sounds like an impressive offer, right? Well yeah, except that the rug costs $149,999.99. Chairman and CEO Patrick Byrne said that ""Of course you can't ignore the offer to ship the rug for $2.95 . That policy keeps our customers coming back and clearly, the person who buys this rug will enjoy great value."
Patrick: a lot of places would ship a $150 thousand rug for free. With shares of Overstock down about 5% as I write this, the press release doesn't seem to have captured the imagination of investors. It hasn't sold the rug either. If you're interested, you can buy the rug here.
For a look at Patrick Byrne's bizarre conspiracy theories, check out this item from Gary Weiss.
Anti-naked short selling conspiracy theorists receive a boost when Overstock.com (NASDAQ: OSTK) announced that the SEC had closed its formal investigation of the company without recommending any enforcement action.
In a familiarly self-congratulatory press release, CEO Patrick Byrne opined that "I believe that this inquiry was initiated, and persisted, because of false allegations made by a cohesive group of short sellers and a few financial journalists who dutifully serve them. In this case, I believe these folks fomented the SEC investigation against Overstock.com then tried to claim that the existence of an SEC investigation was evidence of wrong doing. We knew that was false."
But who cares what the SEC thinks about Overstock! Remember, this is the same agency that signed off on Enron's perversion of mark-to-market accounting. Instead, let's look at what Patrick Byrne said in 2004, as recently noted by Tracy Coenen: "Well, first of all, I'm all about GAAP. I have been so critical of the companies that do -- I don't believe in one-time charges; I don't believe in EBITDA. If somebody talks EBITDA, put your hand on your wallet; they're a crook."
Overstock's latest earnings release contains the word EBITDA seven times. So regardless of what the SEC thinks, Patrick Byrne considers himself a crook.
Last week, Amazon.com (NASDAQ: AMZN) filed a lawsuit in New York over the state's new law, which requires online retailers to collect sales tax from New York customers if the company has affiliates in the state soliciting sales for them.
Most state laws only require sales tax to be collected in a state if a company has a nexus, or physical presence there. Most states require purchasers of products who haven't paid sales tax on the items to voluntarily report the purchases to the state and pay use tax on them (the equivalent of sales tax). As you can imagine, in the government's eyes, this leaves plenty of tax money on the table as consumers rarely report these purchases to their home states and therefore avoid sales and use tax altogether.
New York's new law is a move to collect taxes on these sales, but it has angered Amazon.com and other companies. Affiliate programs are important to increase sales, as the "affiliates" are basically people and businesses who refer others to Amazon.com to make purchases. Amazon.com fought back, and now perpetual money-loser Overstock.com (NASDAQ: OSTK) is fighting back in its own way. Overstock is canceling its agreements with all of their affiliates in New York. If New York is going to use that affiliate relationship in order to impose sales tax on internet sales going to New York, then darn it, Overstock.com is going to show them!
I've received a few chuckles for investment directions I've suggested in the past, but if you care to review a couple of my previous generalities, I believe that my record has held up fairly well.
I submit for approval the following investment angles for the balance of 2008 and possibly beyond:
Have I suggested investments in water holdings? Yes, I do believe that I have. I believe that going long in water stocks could be an investment hedge of the decade. I also suggest a look into the desalination technology from General Electric Co. (NYSE: GE).
I'd think it's a good idea to stick with the railroads, such as Burlington Northern Santa Fe (NYSE: BNI). I claim that, with all things given, for now, railroads can't fail. Conversely, I think it's a good time to back away slowly from trucking. I think misery lies ahead there.
Former Crazy Eddie CFO and sometime Overstock.com (NASDAQ: OSTK) critic Sam E. Antar has posted an item on his blog accusing that company of a "stock market manipulation scheme."
Read Overstock.com and Patrick Byrne: Anatomy of a Stock Market Manipulation Scheme – First Quarter Earnings Releasehere.
In the post, Antar alleges that the first quarter earnings press release issued on Friday was "intentionally timed with expiration of options to manipulate the market (i.e., as a "short squeeze") and to bury and downplay grave news of a criminal investigation in California."
Analyzing the company's numbers, Antar points out that the company's revenue from its auction business declined more than 44% year-over-year, in spite of CEO Patrick Byrne's claim as recently as January that "things look better from here" for the auction site.
Antar accuses the company of violations of SEC rule 10b-5: interesting given that the company is currently the target of an SEC investigation.
Overstock.com (NASDAQ: OSTK) reported impressive numbers yesterday -- and by impressive numbers, I mean another loss years after projections of profitability -- and its shares shot up more than 30%.
Gary Weiss reported on the less optimistic part of the press release that the company issued, but I'd like to take a second to point out something to investors. Even if the company's fundamentals are improving, this is still one of the creepiest public companies on the planet and it's wasting shareholder money on its creepy stalking campaigns.
If you go to DeepCapture.com -- CEO Patrick Byrne's website for trashing critics including Gary Weiss, Jim Cramer, Eliot Spitzer, and a couple of message board posters you've probably never heard of -- in the upper right hand corner of the site, you'll see a little ad: "Click here to shop Overstock.com. 5% of your purchase will go to support this effort." That link brings you to http://www.overstock.com/?TID=deepcapture where, presumably, any order you make will be tagged by the company to funnel 5% of the sale to the "effort."
What exactly is the money being used for? Former white-collar criminal and Overstock-critic Sam E. Antar received an email from former journalist Mark Mitchell: "I am writing a story about short-selllers (sic) and their relationships with independent researchers and the media. I would like to give you the opportunity to respond to various allegations regarding your work." He goes on to say that the article will be published on DeepCapture.com.
So here's the question I have: Why is Overstock.com's board of directors allowing Patrick Byrne to funnel money from the company's sales to a pet project aimed at pseudo-investigative pieces on short-sellers and their relationships with independent researches and the media?
If Patrick Byrne wants to use his own money to wage his self-proclaimed jihad, that's his business. But he should leave corporate assets out of it.
Byrne is usually proud of the company's failures, but the announcement of the latest law enforcement investigation was buried deep in a press release about the latest set of quarterly losses: On April 15, 2008, we received a letter from the Office of the District Attorney of Marin County, California, stating that the District Attorneys of Marin and four other counties in California have begun an investigation into the way we advertise products for sale, together with an administrative subpoena seeking related information and documents. We follow industry advertising practices and we intend to respond fully to the subpoena and cooperate with the investigation.
This investigation is in addition to the ongoing investigation by the SEC, as well as the litigation between Overstock and Gradient Analytics. Gradient sharply criticized Overstock in its research reports and Byrne and company cried that the reports were not true. (Oddly enough, the company still has not turned a profit several years later, and is still a horrible investment.)
Note to Patrick Byrne: Those who have bad things to say about Overstock, its business model, its operations, and its never-ending financial losses aren't necessarily short sellers who are trying to profit off bad news. Many of them are realists who have figured out how awful your company is. Sorry, but sometimes the truth hurts.
In a way, you have to admire Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne. At the very least, he's a guy who's never let his lack of accomplishment interfere with his ego.
In a rambling press release issued last night, Byrne commented on Gradient Analytics' counterclaim filed against his company. I swear I'm not making this up: "This lawsuit is an attempt by Gradient to distract attention from their failing business model."
The CEO of a company that has a track record of missing its own projections -- and has lost over $240 million to date selling knick-knacks over the internet -- has filed a lawsuit against a research firm that correctly forecast the company's problems and is accusing that firm of trying to "distract attention from their failing business model."
That's like Donald Trump telling someone they need a new haircut.
In a recent interview with The Register, Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne told (his side of) the story of Force Protection (NASDAQ: FRPT), a maker of armored vehicles for the military. To hear Byrne tell it, this is company that is keeping our troops safe but that, because of naked short selling, has been unable to raise the capital necessary to fill orders.
Force Protection was down more than 20% yesterday after the company again delayed the filing of its 10-K, citing the "scope of the work to be performed to complete its analysis and to identify the material weaknesses in the Company's internal control over financial reporting, including the need to restate its financial statements." Darn those naked short sellers! Why did they mess up the company's internal controls? Oh wait. They didn't. And in the middle of this mess, the CEO resigned earlier this year.
Meanwhile, Overstock.com, the crown princess of the naked short selling victims, announced that it actually lost four cents more in 2007 than previously reported as a result of changes in its revenue recognition based on "accounting comments from the staff of the SEC."
If you've read my posts on Overstock.com, Inc. (NASDAQ: OSTK) CEO Patrick Byrne's allegations of a vast conspiracy of market manipulation involving a character from Star Wars and crooked reporters, you know that I'm a bit skeptical. But for this post, let's put all that aside and assume that Patrick Byrne's whacked out conspiracy theory is right on: there is indeed a cabal of hedge fund managers and "captured journalists" working overtime to drive down his company's stock price.
In the comments section of his latest blog post accusing Gary Weiss of being a Scaramouch, someone identifying himself or herself as "The Good Samaritan" posted the following (edited for rambling):
Patrick...been following your yeoman work in this area ... I must say it mirrors my own experience over the past several years with Universal Express, Inc. and Richard Altomare ... you should know that Altomare and his general counsel are about to rain on their parade in the 2nd circuit court very shortly...since USXP is so far along in their particular battle (having already won two judgments against the naked shorts), and most who follow this area admire you for your fearless position against the entrenched low-lives operating this scandal for the misguided forces on wallstreet ... do not forget the small but equally worthy fights also going on in this vast battlefield...
A little bit of background on Universal Express and Richard Altomare: The company has massively diluted shareholders while dumping unregistered securities on the market -- and has racked up an accumulated deficit of nearly $100 million in the process. Remarkably, all that dilution and all those losses have come on paltry revenue -- just over $1 million in 2006.
Overstock.com
With its stock trading down significantly yesterday, the good folks at 
I've received a few chuckles for investment directions I've suggested in the past, but if you care to review a couple of my previous generalities, 
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Before the bell: AMZN, F, DOW, DAI, QCOM, MMM, LLY, COST ...
