Earnings season is always an important moment for publicly-traded companies. But for Overstock.com (NASDAQ:OSTK), its upcoming second-quarter 2018 report is critical. OSTK stock has a credibility issue as the underlying company transitions from its original e-commerce platform to one that is increasingly oriented towards the blockchain.
That’s an issue that we’re going to dive into further. The more pressing issue is that the markets haven’t responded positively to OSTK stock. On a year-to-date basis, Overstock shares are down more than 42%. A particular sticking point is that since early April of this year, shares have gone nowhere.
In a dynamic market where bulls and bears constantly fight for control, the horizontal movement is unsettling. Look at any investment-related website’s opinion about bitcoin and its underlying blockchain technology — everybody has an opinion, good or bad. Fence-sitting in this sector sticks out like a sore thumb.
Moreover, Overstock’s recent earnings performances leave a lot to be desired. In the previous Q1 report, the company reported an earnings per share loss of $1.56, badly missing the consensus target for a 91-cent earnings-per-share loss. According to CNBC, this was a negative earnings surprise of 71.4%.
A day after, OSTK stock slipped 6.6%. It was a similar tale in Q4 2017. At that time, Overstock missed its consensus EPS target by a whopping 840% margin. Shares slipped 5.2% the following day, but the real damage occurred days later when OSTK fell into its current range.
Will Q2 produce a different result? It must. Otherwise, shareholders are looking at more pain. I’m just not seeing where the upside is, outside of a bout of market irrationality.
Q2 Is All About the Blockchain, and That’s a Problem
If you know anything about me, and my work at InvestorPlace, you know that I love cryptocurrencies. I have a long-term bullish view towards the sector. I’m also one of those optimists who believe cryptos will have a profound impact on our investments and finances.
That said, I’m also a realist. That a blockchain-powered stock market will take over Wall Street eventually is not only realistic, but probably an inevitability. But the entity behind it will almost certainly not be Overstock or its tZERO cryptocurrency platform.
Just look at the numbers. For Q2, analysts expect an EPS loss of 82 cents. If history is any guide, shareholders should brace for another miss. Over the last eight quarters, Overstock has only met or exceeded earnings target three times.
History isn’t a predictor of future performance of course, but come on — CNBC rates the company’s three to five year EPS growth rate at -24%. That’s not exactly a confidence booster.
The revenue picture is also lackluster. Covering analysts target sales of $474.1 million. Should they get it, this would represent nearly 10% growth year-over-year. The question is whether Overstock can deliver the goods. Between 2014 through 2017, sales growth was a pedestrian 16.6%.
According to Zacks, “Overstock’s tZERO platform is likely to drive the top line in the to-be reported quarter, driven by its initial coin offering.” Herein lies the problem: I’m not sure if any analyst who has deeply researched OSTK stock has the confidence to make that assessment.
We simply don’t know how much Overstock made from its tZERO ICO. That will be revealed during the Q2 conference call, and that worries me. The crypto has suffered multiple delays and random BS. If it was good as advertised, why the BS?
OSTK Stock Is a Wild Binary Bet
The transitioning company’s ICO sets up a binary opportunity — either Q2 is going to produce astonishingly amazing revenue numbers (thanks to tZERO), or it’s going to be shockingly bad. I believe this is the reason why OSTK stock hasn’t resonated with traditional investors.
Look, you weren’t born yesterday. No matter how many times blockchain proponents gush about their platform, as it currently stands, cryptos are the wild west. Much work is required before mainstream trust can be established. And ICOs? Most of this stuff is garbage.
One telltale sign of a garbage ICO is when it “locks in” buyers. That’s what happened with the ponzi scheme BitConnect, and that’s also what happened with tZERO.
From American Greed to American Psycho, I’ve learned that locking people in almost always has a negative connotation. I could be wrong about this, but do you honestly want to take that risk?
As of this writing, Josh Enomoto is long bitcoin.
