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Why Is Overstock (OSTK) Down 9.5% Since Last Earnings Report?

A month has gone by since the last earnings report for Overstock.com (OSTK). Shares have lost about 9.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Overstock due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Overstock.com Q4 Earnings & Revenues Lag Estimates

Overstock.com reported fourth-quarter 2020 earnings of 26 cents per share that missed the Zacks Consensus Estimate by 13.3%. Notably, the company had reported loss of 73 cents in the year-ago quarter.

Revenues of $684 million jumped 84.4% year over year. The figure also lagged the consensus mark by 6.4%.

Quarter Details

Retail revenues (98% of revenues) were $669.7 million, up 83.9% year over year. Home furnishings were more than 90% of fourth-quarter sales.

Markedly, growth in new customers was 94% year over year in the quarter under review. Moreover, new-customer repeat-purchase rate increased more than 6%.

Additionally, orders placed on a mobile device were 50% of gross merchandise sales in the fourth quarter of 2020, up 630 basis points (bps) year over year.

Other revenues were $0.3 million in the reported quarter, up 121.2%.

tZERO revenues soared 98.6% year over year to $11.7 million. MVI revenues were $2.4 million compared with the year-ago quarter’s revenues of $0.8 million.

Gross margin expanded 170 basis points (bps) year over year to 22.4% in the reported quarter. Retail gross margin expanded 180 bps to 22.5%, driven by operational efficiency.

Sales & marketing (S&M) expenses surged 82.3% year over year to $74.5 million. As a percentage of revenues, S&M expenses were down 10 bps to10.9%.

Technology expenses were $35.5 million, up 4.6% year over year. As a percentage of revenues, technology expenses decreased 400 bps to 5.2%.

General & administrative (G&A) expenses were unchanged year over year at $33.2 million. As a percentage of revenues, G&A decreased 410 bps on a year-over-year basis to 4.9%.

Adjusted EBITDA was $22.9 million against adjusted EBITDA loss of $19 million reported in the year-ago quarter. Retail-adjusted EBITDA was $34.2 million against the year-ago quarter’s EBITDA loss of $2.2 million.

Operating income was $9.8 million against the year-ago quarter’s operating loss of $31.6 million.

As of Dec 31, 2020, Overstock.com had cash and cash equivalents worth $521 million compared with $529.7 million as of Sep 30, 2020.

Long-term debt as of Dec 31, 2020, was $41.3 million compared with $42.1 million as of Sep 30, 2020.

Key Q1 Development

On Jan 25, 2021, Overstock.com entered into a partnership with Pelion Venture Partners, a third-party venture capital firm, to oversee Medici Ventures’ blockchain assets. Per the agreement, MediciVentures, Overstock.com’s wholly owned blockchain-focused subsidiary, will be converted to a limited partnership (the Fund), which will have an eight-year life and a total capital commitment of $45 million.

Overstock.com will be a limited partner in the Fund while Pelion will act as general partner. The Fund will return invested capital to Overstock.com first and then split profits on successful exits as outlined in its Limited Partnership Agreement.

Outlook

Overstock.com expects steady EBITDA margin performance in the mid-single digits range over the long term.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -84.91% due to these changes.

VGM Scores

At this time, Overstock has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Overstock has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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