Few internet companies are as old, or as relentlessly controversial, as Overstock (NASDAQ:OSTK).
Founded in 1997 to compete with Amazon (NASDAQ:AMZN), it launched a liquidation business for other dot-com companies in 1999. It then tried to compete more directly with TV ads featuring German model Sabine Ehrenfeld.
Meanwhile CEO Patrick Byrne, whose father John Byrne made GEICO into a direct insurance seller, then sold it to Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), was focusing on naked short selling, then on becoming a bitcoin advocate.
When the Overstock crypto empire began collapsing, Byrne suddenly spun a story about “political espionage” and a “deep state” investigation, which had him in an affair with an alleged Russian spy. On Aug. 22, he resigned as Overstock CEO.
This leads to the question of what’s left of the company Patrick Byrne built … what’s left for OSTK stock?
OSTK Stock and the Numbers
Financially there is very little to see here.
At its Aug. 26 opening price of $20.20 per share, Overstock has a market cap of about $700 million on 2018 revenue of $1.82 billion. The company’s last profit came in 2016, and it barely has enough cash to get through another year.
What was attractive about Overstock stock was the company’s proposed “digital stock exchange” called tZERO. This promised to trade assets ranging from stocks to real estate to fine art on a blockchain, using digital tokens. This would reduce settlement time from days to seconds and make naked short-selling impossible.
Blockchain wasn’t a new thing to Byrne. OSTK said it would take bitcoin as a currency in its online store as far back as 2014. This made Byrne an early hero to bitcoin enthusiasts.
It was the search for backers in tZERO that sent Byrne (and OSTK stock) on his wildest ride. When bitcoin fever peaked in late 2017, so did Overstock shares, which traded as high as $64 at the start of 2018. As Byrne struggled to find backers, the shares fell back to Earth, going below their 2016 low in June.
The Big Oops
At the same time, the Overstock site was suffering from a flaw in its design, which it blamed on crypto coin exchange Coinbase. The bug let buyers negotiate a purchase in bitcoin and pay in a bitcoin fork, called Bitcoin Cash, then get refunds in bitcoin. Bitcoins were selling for over $14,000 each at the time, and Bitcoin Cash was selling for under $3,000. (On Aug. 26, bitcoin was at $10,365; Bitcoin Cash at $311.57.)
Along the way, OSTK was also charged with concealing gift card balances from customers, drawing a $7 million fine from the state of Delaware this month. Byrne’s enthusiasm for bitcoin had him reportedly trying to sell the retailing segment.
So long as the Byrne’s various bitcoin ideas appeared viable, however, investors ignored the operating problems. The shares were outperforming the market despite missing earnings estimates by the proverbial mile.
Byrne successor Jonathan Johnson insists Overstock will continue moving forward in both retail and blockchain. A conference call was scheduled for Aug. 26 to discuss how to proceed.
The Bottom Line on Overstock Stock
While publicly traded, OSTK stock always ran as a one-man band, and Patrick Byrne was that one man.
It’s hard for me to see any future in the company or much future in Overstock stock. The retailing operation is nearly worthless, the bitcoin projects look like nonsense and there’s no one bringing capital in the door that might change things.
As logistics consultant Brittain Ladd told The New York Post recently, Byrne should have been fired years ago. But that would have just brought us to where we are now.
Where we are now is the end.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.