Overstock.com, Inc. (NASDAQ: OSTK) can't seem to make money selling chatchkes online, so the company has shifted its business model toward suing anyone and everyone who has ever thought a negative though about Overstock, its business model, or its controversial CEO Patrick Byrne.
Today the company announced that it has settled its lawsuit against Gradient Analytics, which it had sued for publishing negative research that played a role in driving down the company's stock price. In a press release issued by Overstock, Gradient said that "Having reviewed all SECfilings, relevant accounting literature, and all other information available to it, Gradient now believes that, to the best of its knowledge, Overstock's stated accounting policies did in fact conform with Generally Accepted Accounting Principles (GAAP) and regrets any prior statements to the contrary."
The company also said that directors it had previously suggested were not independent were in fact independent in accordance with NASD rules.
Is this a big victory for Overstock or just the end of a battle of attrition where the publicly-traded company had more cash to burn on legal fees than the small research shop? We'll never know.
But I'll make a bet right now: Overstock's earnings report for the fourth quarter will not include a massive one-time gain on the settlement of this litigation.
As for Gradient's most important claim -- that Overstock's business model is flawed and the company is unlikely to ever become solidly profitable -- there is no evidence to the contrary.
Overstock.com, Inc. (NASDAQ: OSTK) CEO Patrick Byrne is no stranger to bizarre paranoia and conspiratorial lunacy, but he actually appears to have topped himself in a YouTube interview with market pundit Don Harrold: "Everybody should go out and get sort of a two or three month supply of food and water for when there's a huge dislocation... There's nothing wrong with putting a thousand dollars worth of camping food in your basement."
Wow. And then he somehow links the whole stockpiling food thing to writing to politicians to complain about naked short selling. He then talked about Iran's plans for attacking the the east coast with nuclear weapons. Just so you don't think I'm making it up, watch the video below. He closed by saying that "Jim Cramer's a crook."
In the past, I've written about Overstock.com's (NASDAQ: OSTK) habit of issuing press releases to announce minor procedural victories in the deluge of lawsuits the company is a party to.
Apparently that only applies to victories. Last Tuesday, Online Media Dailyreported that "Utah's highest state court has tossed a lawsuit accusing SmartBargains of engaging in unfair competition by displaying pop-up ads to Overstock.com visitors."
The Utah Supreme Court stated that "Overstock failed to show that SmartBargains' pop-ups, labeled with the SmartBargains' logo and appearing in a separate window on the top of Overstock's website, are deceptive, infringe a trademark, pass off SmartBargains' goods as those of Overstock's goods, or are likely to cause confusion."
Here's my question for Overstock and its controversial (to put it politely) CEO Patrick Byrne: why did Overstock issue a press release when it was dismissed from an antitrust lawsuit, but didn't make a similar announcement when a lawsuit it filed was dismissed. Even more hypocritical, Overstock issued a press release when it first filed the lawsuit back in 2004. If the filing of the lawsuit was material, isn't the dismissal equally material? It seems like a classic case of selective disclosure -- not illegal, just scummy.
One of the most common rebuttals to the naked short selling conspiracy theories is this: Name one company that has been hurt by naked short selling.
In a July 22nd interview with Fox Business, Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne gave an example: Force Protection (NASDAQ: FRPT). "Makes vehicles for soldiers in Iraq. . . stock was at $25, got naked shorted down to $4, canceled the secondary. . . Some soldiers are going to die in Iraq this week because some hedge fund guys need a new Ferrari."
Oops. On August 14th, Force Protection dropped some bad news on its shareholders. In addition to having missed the deadline for filing its 10-K, the NASDAQ is now threatening to de-list Force Protection's stock for failing to file its 10-Q for the quarter ended June 30, 2008. This comes after the company changed auditors and, back in March, disclosed "certain material weaknesses in internal control over financial reporting."
And that is, according to a message Patrick Byrne left on a message board (View the post for a video of the interview) the "easiest way to explain this problem to Congressmen, Senators, and most Americans."
Note to Byrne: I, and I suspect many others, will be more convinced when a company without serious accounting/internal controls problems and/or a failed business model complains about naked short selling. So far we haven't heard anything like that.
Patrick Byrne, the petulant chairman and CEO of the king of corporate crybabies, Overstock.com (NASDAQ: OSTK), issued yet another rambling press release on Friday, lamenting the fact that the company had reappeared on the Regulation SHO Threshold List after its stock price tanked following quarterly earnings that disappointed investors. Byrne said that ". . . the price of it fell 40% when we announced earnings that largely beat the Wall Street consensus expectations."
Regardless of how impressed Mr. Byrne was with yet another quarterly loss from his company, Stifel Nicolaus analyst Scott Devitt wasn't buying it. He downgraded the stock from hold to sell, pointing out that the company's revenue growth benefited from "fairly easy comps," adding that Overstock "may never achieve operating margins above 2%-3% at scale."
But never mind analyst predictions. Let's look at Patrick Byrne's predictions. In a 2001 interview with The Wall Street Transcript, Byrne said that by 2004 he "would want to see us well over $400 million and as profitable as hell. Making a ton of money. I want to see that next year."
That was seven years ago, and Overstock still has not reported anything resembling a profitable year, although Byrne is predicting that 2008 will be profitable in spite of a year-to-date loss of $10.4 million. Apparently Mr. Byrne is upset that no one is taking his forward-looking statements seriously anymore, but the fact is that, historically, Mr. Byrne's projections of profitability have been horrifically optimistic, and investors who believed him got their stuff handed to them.
If Mr. Byrne stopped wasting time lashing out at critics and devoted a few hours a day to backing up his big talk, the critics would go away and the stock would thrive.
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.
In the past, I've written about 
Patrick Byrne, the petulant chairman and CEO of the king of corporate crybabies, 
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, 
The Wal-Mart Weekly: Retailer accused of sweatshop conditions in Bangladesh
Fog clearing - maybe. Clear skies - no! GE, JNJ, MRK, PG, RTN, WFC
Cramer on BloggingStocks: A fighting chance for the credit markets.
