Overstock.com Inc (NASDAQ:OSTK) stock just keeps falling. Another 8% decline on Monday means OSTK stock now has dropped 63% just since early January.

There was a time not that long ago when that might have seemed like a buying opportunity. In early February, I called  OSTK stock a high-risk, high-reward play. Unfortunately, Overstock stock has only proven me half-right so far. And even with the steep decline, I no longer think the rewards are there.

The problem is that Overstock’s fourth quarter earnings report last month was a disaster. It’s not just that revenue and earnings badly missed consensus expectations (and they did). It’s how the miss happened, and the confidence destroyed by earnings and the events of the past few weeks.

Seemingly all of the negative sentiment toward both Overstock.com and CEO Patrick Byrne has been borne out. Both the legacy e-commerce business and the tZERO trading system appear to be in much worse shape than they did just three months ago.

More broadly, Overstock.com has severely undercut investor confidence. That can get fixed in time. But even with OSTK stock much cheaper, I’m not willing to take the risks after an ugly start to 2018.

A Poor Q4

Overstock’s legacy e-commerce business had an ugly fourth quarter. Revenue fell 13% year-over-year, missing analyst expectations badly. Sales and marketing expense rose the same amount.

As a result, Overstock’s retail business swung to a loss in the quarter, even excluding negative (and mostly non-cash) impacts concerning deferred tax assets.

On its own, the numbers themselves perhaps aren’t quite as bad as they seem. On the Q4 conference call, CEO Patrick Byrne cited “terrible results” from the company’s SEO (search engine optimization) efforts.

In returning to a case he’s made before, Byrne also cited competitive pressure from Wayfair Inc (NYSE:W).

With Wayfair unconcerned with losing money, and thus pressuring click rates and significantly out-spending Overstock.com on advertising, the share losses don’t necessarily suggest a failure on the part of OSTK.

Rather, it’s difficult, if not impossible, to deal with one competitor unconcerned with losses and another (Amazon.com, Inc. (NASDAQ:AMZN)) focusing on market share rather margins.

Byrne long has argued that Overstock’s long-term performance is impressive given how much capital rivals have raised  and burned.

A part of the long-term case for OSTK stock, relative to the e-commerce business, is that eventually the company will wait out those money-losing rivals and begin to drive some level of reasonable profitability.

With Overstock stock now trading at roughly 0.5x revenue, that case could drive significant upside – or suggest that a buyer might see much, much more value in the business than the public markets do.

E-Commerce Problems

But there are two big problems here. The first is that Overstock.com is considering selling the legacy business right now. Q4 results, whether explainable or not,  are a major stumbling block there.

Byrne may be right that Wayfair’s strategy isn’t sustainable, and the one-third haircut in W stock just since February suggests some investors agree. But note too that Wayfair had a disappointing Q4 itself – which suggests that Wayfair buying sales isn’t the only issue.

The second problem is that, in response, Overstock.com is dramatically changing its strategy. As Byrne put in the Q4 release, the company is moving to a “high growth, negative GAAP net income” model. Essentially, it’s chasing Wayfair, Amazon, and other e-commerce leaders.

It’s a major shift – and it has to undercut confidence in the business. Byrne has argued for years that the very strategy OSTK now is pursuing is wasteful and value-destructive over the long term.

He’s largely chalking up a weak quarter to one-time SEO issues – and then overhauling the entire business in response.

It’s not a surprise Overstock stock has sold off dramatically since Q3. For investors intrigued by the potential of the e-commerce business in the long term, or the possibility of a value-enhancing sale, in Q3 is disappointing.

For those OSTK shareholders excited by the company’s blockchain efforts, the news isn’t a ton better.

Not Enough Confidence in OSTK Stock

Byrne spent a lot of time on the Q4 call talking up the blockchain-related investments in the company’s Medici Ventures subsidiary. It may be that there’s real value in at least one of Medici’s 12 investments, with the tZERO platform the most well-known.

And I do think Overstock.com has a real shot in blockchain, unlike more questionable plays like Riot Blockchain Inc (NASDAQ:RIOT) or Eastman Kodak Company (NYSE:KODK).

But the tZERO ICO is going much slower than projected. Just $91.4 million has been committed, per the Q4 presentation – well shy of a $250-$300 million goal. That in turn appears to have led Overstock to plan a stock offering, which tanked OSTK stock before being quickly pulled.

And while Byrne spoke optimistically about the company’s future in the space, he’s also notably overblown the company’s opportunity in securities lending, as I wrote earlier this year.

And so what does Overstock.com look like at this point? The legacy e-commerce business is coming off its worst quarter in years. Customer numbers were better in January and February, according to management, but earnings are going to turn negative. Is a business in the midst of a 180-degree turn in strategy going to sell?

Can investor really believe Byrne – whose company never has achieved sustainable, material, net profitability – when he says Overstock.com will “crush” in the new strategy, and “any time we want, we can switch back to the other strategy.”

So OSTK stock suddenly looks like a combination of an unprofitable online retailer with market share concerns and an unproven group of investments in blockchain technology. Long-running questions about Byrne’s leadership style (going back to his public fight against “naked” short selling) are returning.

It’s no surprise investors are fleeing. And, at this point, it’s difficult to see what will win them back any time soon.

As of this writing, Vince Martin has no positions in any securities mentioned.