Shares of internet retailer Overstock (NASDAQ:OSTK) are popping sharply on Thursday following the disclosure of its second-quarter earnings report. Encouragingly, Overstock beat Wall Street expectations for profitability and revenue, thus justifying the company’s acquisition of the intellectual property (IP) of Bed Bath & Beyond (OTCMKTS:BBBYQ). As of this writing, OSTK stock is up more than 15%.
According to Overstock’s official press release, the company posted total net revenue of $422 million for Q2. This tally represents a decrease of 20% on a year-over-year (YOY) basis. On the bottom line, net loss came out to $73 million while diluted net loss per share was $1.63. Additionally, adjusted diluted net loss per share (non-GAAP basis) landed at 2 cents.
These results, while perhaps not exactly robust, were much better than analysts had feared. According to Zacks Investment Research, analysts had pegged the company’s adjusted loss per share to come in at 9 cents. The consensus estimate also called for Overstock to ring up sales of $406.9 million.
Notably, Overstock CEO Jonathon Johnson highlighted the positive development of the company’s Bed Bath & Beyond acquisition in the report:
“The successful launch and early performance of our Bed Bath & Beyond business in Canada has been encouraging. The Bed Bath & Beyond brand is strong. In Canada, customers want to buy – and are comfortable buying – from the new Bed Bath & Beyond website.”
Johnson also expressed optimism about the future of the acquired IP in the United States, emphasizing brand awareness.
OSTK Stock Gets a Nod of Approval
Given OSTK stock’s impressive rally on Thursday, it’s difficult for analysts to ignore the forward implications of Overstock’s wheeling and dealing. According to Seeking Alpha, experts at D.A. Davidson were “encouraged by the better-than-expected sales and profits” — especially given that the macroeconomic environment organically imposes a headwind for OSTK stock.
In particular, the home e-commerce category has been slumping. It’s possible that the combination of blistering inflation and rising borrowing costs impacting the housing market may play into this tough backdrop for Overstock and its peers.
Still, Overstock appears to recognize these challenges and has implemented protocols to properly address them. “As we navigated an intensely competitive environment well with our asset-light business model, we were able to provide smart value to our customers, improve our year-over-year revenue trend, and deliver another quarter of positive adjusted EBITDA,” Johnson stated in the report.
Investors may recall that Overstock’s bid for Bed Bath’s IP represented a “stalking horse” agreement. Per Investopedia, a stalking horse bid “sets the low-end bidding bar so that other bidders can’t underbid the purchase price.”
For Overstock, because its bid was the sole one on offer, a bidding war did not materialize. Therefore, the company got what it wanted without fuss, adding to the case for OSTK stock.
Why It Matters
Analysts currently peg OSTK stock as a consensus “moderate buy,” which includes D.A. Davidson’s reiterated bullish assessment posted yesterday. Overall, the average price target among the experts lands at $38.67, implying about 7% upside potential.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
