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.
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 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."
According to an 8-K recently filed with the SEC, Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne will be taking home what looks like a pretty small pay package: A bonus of $0 for his work in 2007, and a salary of $0 for 2008. He will receive a restricted stock grant of 15,000 shares, but that's pretty reasonable.
But at a cost of nothing, Patrick Byrne is still a very, very expensive CEO for the company's shareholders. His postings on message boards and stalking of the company's critics may be creating very serious liabilities for the company, and he and Overstock are currently the subject of an SEC investigation.
And that's to say nothing of the fact that, operationally, Overstock.com has been nothing short of an abject failure. The company has lost enormous sums of money since its inception. The company's sales growth has stopped, and as Sam Antar has written on his blog, Byrne has established a track record of failing to deliver on his projections.
So Byrne might seem like a bargain at $0 per year, but it's a bargain in the same way that buying lead-tainted toys for 50% off is. Your children's safety and the well-being of a public company are too important to cut corners. In the past couple months, Overstock has lost hundreds of millions of dollars in market value.
The cost of having Patrick Byrne as your CEO isn't $0 after all.
As Tracy Coenen discussed earlier, Overstock.com (NASDAQ: OSTK), co-founder, president and chief operating officer Jason Lindsey resigned and left the company's board of directors.
Lindsey had already retired once but came back, in CEO Patrick Byrne's own words, "when I screwed it up a couple years ago". Byrne added that "He's done a superb job. Now that it is back in a solid trailing twelve month cash-flow-positive position, he wishes to return to our previous arrangement. While Jason won't be as involved in the day-to-day operations of the company, he will still oversee special projects in a part-time capacity."
After Byrne's pat on the back and attaboys, the stock hit a new multi-year low in this morning's trading.
There are a few things to keep in mind here. As Gary Weiss wrote on his blog,
Lindsey says he is leaving because he is "ready to take a less active role in order to spend time on some outside ventures." Baloney. Note that he is leaving as director -- a position that surely requires no major heavy lifting in a board as supine as this one.
Sam Antar is also suspicious of the resignation that comes in the midst of an SEC investigation: "Was the SEC investigation of Overstock.com an undisclosed factor in Jason C. Lindsey's resignation?" Antar also discusses accounting questions surrounding Overstock.com, and comments from Mr. Lindsey on conference calls that raise questions about his involvement.
One thing's for sure: The market's reaction to Lindsey leaving doesn't suggest that traders buy Byrne's "everything is hunky dory" assertion that Lindsey left because he has restored the company to such great condition he is no longer needed in a full-time role.
As Gary Weiss discussed on his blog, Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne issued a press release last night to complain that his company was back on the REG SHO list, a list of stocks experiencing failures to deliver often indicative of naked short selling. Overstock had disappeared from the list for 6 days after 669 consecutive days on the list.
Byrne added that "Here we are on the eve of the third anniversary of Regulation SHO (January 3) and hundreds of companies continue to be manipulated -- right under the SEC's watchful eye."
Here's where it gets interesting. According to a countersuit against Overstock filed by Copper River:
When asked about the December 2003 short squeeze, Byrne replied, "when opportunities come along where we can knee the shorts in the groin, that's always good for fun and amusement."
What did Byrne mean by that? If Patrick Byrne engaged in perpetrating an artificial short squeeze to "knee the shorts in the groin", that would be manipulation!
Good news for Overstock.com (NASDAQ: OSTK) customers: The company ranked number 1 in the Online Customer Respect Study issued by the Customer Respect Group for the fourth quarter of 2007.
In a press release announcing the accomplishment, CEO Patrick Byrne said, "Our No. 1 ranking is more validation of our overwhelming focus on treating our customers respectfully and honorably. We want to offer the best deals on the web while being the easiest and safest site to use."
It's great that Overstock's customers are being treated well, but how about the company's investors? Overstock has an accumulated deficit of over $238 million -- so the company's service to its investors has been subpar at best.
But that's all OK, because Overstock has a "overwhelming focus on treating our customers respectfully and honorably." Profits be darned!
On Friday December 7th, Overstock.com, Inc. (NASDAQ: OSTK) CEO Patrick Byrne appeared on CNBC and said that the company was "having a pretty nice Christmas." But he also said that fourth quarter (Q4) GAAP net income would be between -1% and +1% of revenue due to aggressive sales promotions.
The chart at right shows how the stock has responded since that day, losing more than 25% of its value. One shudders to think what would have happened if Overstock had had a "pretty bad" Christmas.
But rather than accept responsibility for his company's inability to deliver any kind of fundamental strength to shareholders, Patrick Byrne has played the diversion card: In a rambling press release put out on Thursday morning, he complained that the company has been on the SEC's REG SHO list for 666 consecutive trading days: "Apparently, the SEC is not serious about enforcing the close out provisions of Regulation SHO or stopping 'market manipulation that is clearly violative of the federal securities laws.'"
Maybe Overstock is being manipulated by short-sellers. But instead of whining about it, Byrne should shut them up the way that good companies to: Deliver on the fundamentals. A "pretty nice Christmas" that might be break-even and sends the stock tumbling doesn't count.
Nobody likes a whiner, and Byrne's track-record of under-performance and incessant complaining gives investors little reason to be optimistic -- unless of course they're short the stock.
Monday was another ho-hum day on Wall Street. A bank announced another $10 billion in subprime writedowns, people continued to speculate about what the Fed will do, and Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne made a fool of himself.
Byrne appeared on CNBC's Closing Bell on Friday to talk about his company's holiday season. Byrne said that the company was "having a pretty nice Christmas", and that gross bookings are up about 10% so far over the prior year quarter.
However Byrne also warned that gross margins would fall due to aggressive discounting, with Q4 income of +/- 1% of sales and EBITDA of between $5 and $10 million.
If you want to get Patrick Byrne's take on naked short selling and the alleged conspiracy (involving class-action lawyers, hedge funds, and journalists) against his company, Overstock.com (NASDAQ: OSTK), then Deep Capture, the Movie is a good place to get it.
In the 45th slide of the presentation, to provide evidence of the journalistic conspiracy, Mr. Byrne plays a clip of former New York Post business editor Dan Colarusso speaking to Herb Greenberg, Joe Nocera, and Dave Kansas: "When I think of Patrick Byrne ... We have barrels of ink and stacks of money and all the resources in the world at our disposal, legal and, indeed our media, to crush him."
Is this indicative of a conspiracy? Speaking on Mad Money with Jim Cramer about Mr. Byrne, Herb Greenberg said that "the real conspiracy, if there's a conspiracy, is a conspiracy by these people to silence the critics."
Exactly. And here's a tip for Mr. Byrne: Journalists tend to be big believers in free speech. When you attack their ethics, attempt to intimidate them into silence, and an employee of your company sets up a website to smear them -- that angers journalists, and they jump to each others' defense.
Was there a conspiracy of journalists against Patrick Byrne? I seriously doubt it. But Byrne's efforts to silence his critics have made him an enemy of journalists and lovers of the First Amendment everywhere. Maybe that's the conspiracy.
While I thought the reaction to his comments was overblown (A poorly worded but passionate defense of his support of school vouchers), the NAACP called on him to apologize. Of course, Byrne being Byrne, he refused.
"Recently, video-taped comments I made in a school voucher debate setting were edited and posted online. Subsequently, some journalists erroneously claimed that I dismissed these statements as having been taken out of context. This assertion is false. In fact, my claim is far stronger: the clip is a lie, because it inverted what I actually said, which is far worse than simply being 'taken out of context'.
Not content to apologize for his comment about burning kids, Byrne is now burning Overstock's money to defend himself. Why is Byrne using shareholders' money to defend comments he made in a personal political crusade that has nothing to do with the company?
Overstock.com Inc. (NASDAQ: OSTK) Chief Executive Patrick Byrne's long, rambling apologies to shareholders for his company's terrible performance usually provide a needed humor break from the pressures of earnings season. This quarter, though, Byrne offered a shorter statement about the company's improving financial performance.
To be sure, the quarter was merely awful instead of disastrous. The company lost $4.7 million, or 20 cents per share, compared with $24.5 million, or $1.19, a year earlier. Revenue rose 3% to $161.9 million. Analysts expected a loss of 39 cents and revenue of $155.1 million, according to Thomson Financial.
In his letter, Byrne sounded ecstatic. The good news isn't shocking given the better-than-expected quarter reported by eBay Inc. (NASDAQ: EBAY) and bodes well for next week's report from Amazon.com (NASDAQ: AMZN). Byrne's missive is reprinted below for all to enjoy.
Dear Investor:
In Q3, we generated positive EBITDA for the first time in a non-Q4 quarter. I believe this validates our view that a profitable business model is emerging, particularly in light of our de minimus capital expenditures ($316K during Q3).
We also returned to positive (albeit modest) top-line growth despite halving our marketing expenses. A year ago, I said that we had a laundry list of projects we were working on to improve our marketing efforts. Since then, our marketing dollars have become twice as efficient. We are about one-third of the way through the list; I do not know what the remaining two-thirds will bring.
Expenses are drum tight, product selection is strong, operations are humming, and customer satisfaction is extraordinary. We are superbly positioned for the holiday season.
I look forward to our call, and as always, remain,
Ok, so Overstock.com, Inc. (NASDAQ: OSTK) can't seem to make any money, and even it's once torrid sales growth has gone negative.
But that didn't stop the company from spending $120,000 lobbying the federal government in the first half of 2007, presumably on behalf of CEO Patrick Byrne's anti-naked short selling jihad. In the past, Byrne has referred to his high profile, highly-delusional campaign against the "scandal" as his "mitzvah".
But now I have to ask:
Mr. Byrne: Since when is paying Washington lobbyists $120,000 of your shareholders' money considered a mitzvah?
If I were a shareholder, I'd be wondering why my money was being used for Patrick Byrne's mitzvah instead of for my practical purposes such as, say, creating a profitable business.
For my coverage of the Overstock freak show, check out Gary Weiss and Sam Antar's blogs
Chalk up another problem for 
On Friday December 7th, 
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