OSTK - Overstock.com

[rkbabang]

Anyone here looking at the t0 token sale? 

 

There isn't much info on it on the website.  Just this.

https://tzero.com/news/2017/11/16/tzero-announces-launch-date-and-initial-terms-for-its-proposed-token-sale

 

I'm going to register and see if I can get more info.

 

I'm trying to register, but I'm not sure if I am going to do this next step.  The first step is to go to verifyinvestor.com and get a verification certificate, that took about 15 minutes.  I thought that was it until I went back to saftlaunch.com and they now want me to upload a picture of my passport and another picture of me holding my passport (see attachment).  Does this sound a little excessive?

I don't see how they are going to raise half a billion dollars if they expect potential investors to go through this verification process.  Tezos didn't do any of this.

[mwtorock]

Been in this name since 2014. The thing is you cant take Patrick's words at face value. He said on the last call he wont sell it for 10B, but I bet he will jump to it if any offer comes near half of that. Holding or re-balancing both could make sense. To me, there are two catalysts in the short term: 1) online retail - cash it out or merge it with another BM company like BBBY or Big Lots - i thought it is worth about 500m - 800m depends on synergy, but it could be more if the software indeed creates value for the buyer as Patrick states. 2) ICO - a successful ICO would no doubt increase the value of tzero. This is more speculative, but if they can raise 200m without losing any equity, Medici alone could be worth 1B. Some people say performance of bitcoin will have an impact on the ICO, which might be true wrt investor sentiment.

 

Overall i think short term upside of 20% -30% depends on catalysts. Long term revolutionary block chain technology plays are more vc type of investing, which is hard to value for me.

 

Good article here

https://seekingalpha.com/article/4127216-much-overstock

[spark411]

i'm having the same issue.  I keep selling 10% of shares at certain weight of portfolio but after I sell it keeps going up.  I'm reminded how hard it is to hold onto a stock like buffett and get the large returns.    At 1x sale we're looking at 1.8B which means about 20% above today's price.    using pabrai's 90% of intrinsic value method, it should mean i should sell at 10% of today's stock price.  very hard to decide what to do.  the target prices assumes no value on the t0 stuff.  hold like buffett or sell like pabrai?

 

Why should it trade at 1x sales?  I think it should be based on earnings alone.  I could care less about their sales if they can't make a profit.

 

I think 60-75% of the value of the company right now is t0.  t0 seems very speculative right now.  It could be worth billions and OSTK is still under-valued or it could be worth nothing.

 

 

I'm stealing a comment made on seekingalpha.  I agree with this analysis.  I think 1x revenues is conservative and offers  margin of safety.  Look at WMT stock after buying jet.com.    I think a company like Target or Macy's will benefit from OSTK retail business.

 

jet.com sold for 3.billion. they had 1billion in revenue. ostk has 1.83 billion in revenue. zulily sold for 2.4 billion, they have less than 439million in revenue.. etsy has 2billion market cap on 397 million in revenue... what's so hard to comprehend???? someone on here just posted that otsk retail business is $17... come on guys, get a clue !

[no_free_lunch]

spark, don't you think you are cherry picking?  Overstock business is not new and it is stagnant with low profits.  The share price going up seems to correlate with t0 and bitcoin.

[mwtorock]

Tech acquisitions is also about the talent. Walmart paid for the management team of jet.com too, and you have seen changes on Walmart.com ever since they joined. In overstock's case, i dont know if anyone would want Patrick ;).

[spark411]

Good points.  I've been a big bull on this stock for the past few years and thus may have several biases.

 

I'm looking for folks to refute my case so I can see what I'm missing.    I do not think I'm cherry picking the comps.  If anyone can show an internet business transaction over $500M that was below 1x revenue, please post so that we can all learn.

 

I do not think past EBITDA is a good measure to value OSTK for the following reasons  A)  the market does not seem to value the stocks based on EBITDA  B)  OSTK has very conservative accounting practices i.e. marketing costs are expensed vs. capitalized.  This supresses EBITDA relative to it's peers  C) There is a lot of noise in the past EBITDA numbers. For example, legal costs related to naked short selling is an offensive expense that is not recurring.    Another example is that investments for T0/Medici are burdened by the internet business.  A buyer would not factor those costs in the proforma EBITDA calculations D) recent EBITDA is lower b/c of changes in Google's algorithm.    Changes in Google's algorithm occurs every few quarters and is just part of the business.  EBITDA should be normalized for the dips.  E)  Wayfair is acting irrationally and that's causing OSTK sales and EBITDA to suffer.  I think this is the one I'm most worried about. It's unclear how long this will occur.

 

[SnarkyPuppy]

Good points.  I've been a big bull on this stock for the past few years and thus may have several biases.

 

I'm looking for folks to refute my case so I can see what I'm missing.    I do not think I'm cherry picking the comps.  If anyone can show an internet business transaction over $500M that was below 1x revenue, please post so that we can all learn.

 

I do not think past EBITDA is a good measure to value OSTK for the following reasons  A)  the market does not seem to value the stocks based on EBITDA  B)  OSTK has very conservative accounting practices i.e. marketing costs are expensed vs. capitalized.  This supresses EBITDA relative to it's peers  C) There is a lot of noise in the past EBITDA numbers. For example, legal costs related to naked short selling is an offensive expense that is not recurring.    Another example is that investments for T0/Medici are burdened by the internet business.  A buyer would not factor those costs in the proforma EBITDA calculations D) recent EBITDA is lower b/c of changes in Google's algorithm.    Changes in Google's algorithm occurs every few quarters and is just part of the business.  EBITDA should be normalized for the dips.  E)  Wayfair is acting irrationally and that's causing OSTK sales and EBITDA to suffer.  I think this is the one I'm most worried about. It's unclear how long this will occur.

 

 

I think you're looking at it from an angle that really wants this to do well.  Objectivity is important.    If your thesis is predicated on internet businesses being worth > 1x revenue if < $500mm market capitalization,  there are a lot of better opportunities for you to find in the microcap space.    In response to your direct points:

 

A-  Market will value the business on a DCF of its future cash flows.  Revenue multiples are only a very small part of the picture.    Two companies with the exact same revenue should trade at very different revenue multiples given quality of revenue, recurring nature of revenue, operating and fcf margins, competitive advantage, business and industry outlook, etc. 

B-  Marketing costs not being capitalized is conservative? 

C-  The t0/medici business doesn't make money.  At ~$40 per share you could argue that you were purchasing the securities lending blockchain for free/very cheap given certain assumptions in the "free money" ICO.  At $64 per share, you're speculating on this portion of the business. 

D-  What is OSTK's normalized EBITDA?  And why are you not subtracting out capital expenditures required to maintain the business? 

E-  Not sure what this means.

 

At $64 you're basically guessing on 1/3 of the business.    Not saying it won't double or triple, but you're absolutely paying for some success in t0/Medici. 

 

Personally-  I think Byrne recognized an opportunity to ride the waves of blockchain hype into a sale of the business.  This may work out.     

[spark411]

Very good points.  In fact, I've been selectively selling OSTK for a microcap type of stock.  Other opportunities exist that have similar upside from this point but less downside risk--I think downside is 50%.  Even though I'm optimistic, the risk/reward does not outweigh other opportunities available.  The interesting fact is that there are two catalysts about brewing in the next 4-6 weeks and the question is do you sell before the events or afterwards.  Two events are:  Potential sale of online business and ICO early December.  Learning a lot about the challenges of investing. 

[aws]

Don't forget to factor in the dilution from the warrant transactions earlier this month.  There will be 3,722,188 new shares issued at 40.45 per share early next year.  Combined with the warrant sales proceeds the company will received $157 million in new cash, but those new shares will represent a 13% ownership of the new company, so for every 1% you had before you will only have 0.87% ownership.

 

All other things being equal, this has a pretty significant effect on the share price.  The funds that bought the warrants have made a profit of about $85 million so far on a $6.6 million investment (which was a no-brainer for the funds as I think the warrant cost was set to something like 1/3rd of the black-sholes warrant value), or about $23 per share after exercised.  In theory that $85 million is like a transfer of wealth from the existing shareholders, who would have held a greater ownership interest, to the option holders.  With about 25 million shares outstanding before the deal that's a $3.42 reduction per share compared to what the shares should be worth without the sweetheart deal given to those funds.  However, I'm sure the hype created by getting those big names involved resulted in much more of a gain than the wealth transfer lost, but if you're valuing it on a long-term basis that shouldn't really matter.

 

By the way, does anyone know for sure how the accounting of these warrants will be done for Q4?  My recollection of the accounting rules is that they will need to revalue them based on market value at 12/31/17 and record a loss equal to the difference, which as I said is currently an $85 million loss.  It's just a paper transaction, but that could lead to an ugly headline EPS figure if people aren't prepared for it.

 

 

[Sharad]

Crazy good.    Listen to the last 2 minutes.  Clearly state catalyst.  Will be interesting to see how much higher it goes.  I think the market cap equaling the total revenues is reasonable.  Thoughts?

 

 

I just sold half of my shares last week so I expect the stock to at least triple from here.  If there is one thing I do consistently it is sell way too early.

 

i'm having the same issue.  I keep selling 10% of shares at certain weight of portfolio but after I sell it keeps going up.  I'm reminded how hard it is to hold onto a stock like buffett and get the large returns.    At 1x sale we're looking at 1.8B which means about 20% above today's price.    using pabrai's 90% of intrinsic value method, it should mean i should sell at 10% of today's stock price.  very hard to decide what to do.  the target prices assumes no value on the t0 stuff.  hold like buffett or sell like pabrai?

 

Explain to me why you two are crying over this...after making such wonderful investments and enjoying terrific returns?  The glass is half-full, not half-empty.  Sell if you can't sleep...hold if you can sleep.  Cheers!

 

I’m not crying. That’s why I held onto half of my shares so that I can sleep either way it goes.

 

This reaction to selling and seeing a stock shoot higher reminds me of the dot-com boom and bubble. Rather than say anything negative to that, I'd like to congratulate you folks for having the discipline to sell in a parabolic move (ignoring OSTK for a moment, and consider the move of cryptocurrency; regardless of it will become the cornerstone medium of exchange in the future, the move is unsustainable in the long run, and companies piggybacking its move cannot go up forever). It's one of the most difficult things to do as an investor.

 

Hat tip to your big victory. May you have many more in the future!

[spark411]

Huge news....

 

https://finance.yahoo.com/news/shares-retailer-turned-bitcoin-play-185301592.html

 

 

[KinAlberta]

Congrats to those still in this!

 

We bought tons in May and August...in fact, it was going to be double the size of any of our positions, but the order in August was only 1/5th filled!  :(

 

We have not sold any...fair value is in the $37-45 range, especially if they spin-off the blockchain business...that's about $10-13 by itself in this market, and Overstock retail is about $27-35.

 

Cheers!

 

Many years back I owned OSTK only to come back in a year or so ago after sitting out for maybe a decade. However, I bought small and pared it back in early 2017 and kept a small position until recently when I doubled it. So, it's still miniscule.

 

That said, I'm really curious about your reasoning in trying to as you said: "going to be double the size of any of our positions".

 

 

Now that there's talk of taking it private, I see the management in a new light. It shows a willingness either one, pump one's stock when proper financial reporting fails, or two, to thoroughly screw over existing, possibly very long term minority shareholders - usually at a price well below intrinsic value as estimated by those most able to determine it - the insiders themselves. No easier way to transfer wealth from your partners to yourself. (Wealth being not just the current value but the fact that it exists at all.)

 

Note: as someone that traded in and out - I had no long term loyalty but I'm sure there would be others that have likely stuck with it for many many years.

 

 

Given the possible sale, blockchain expansion, etc. I'm even more curious now about what you are thinking about actual valuations, and any other thoughts you might be willing to share. It would be refreshing compared to the useless speculative potential type of information we get from uncritical media seeking clicks. For example:

 

 

 

Regularly the vested, self-serving interests (aka stock promoters) typically say that whatever they are promoting "can double from here".  Then when/if the stock starts to move they suddenly and predictably up their forecasts to 5 to 10 times.  Here we have roughly 8X:

 

 

 

Overstock.com shares spike after blockchain unit announces for-profit property registry

Overstock.com shares briefly rise 8.79 percent to $58.15 a share after CEO Patrick Byrne announces a joint venture for a global property registry based on the blockchain technology behind bitcoin and other digital currencies.

The for-profit venture is in partnership with well-known Peruvian economist Hernando de Soto, who has argued that formal documentation of land ownership is the key to alleviating poverty in underdeveloped countries.

Independent investor Marc Cohodes thinks if Byrne can deliver on his blockchain investments, Overstock shares are worth between $200 and $400 each.

Evelyn Cheng | @chengevelyn

Published 3 Hours Ago  Updated 1 Hour Ago

 

 

..."If [byrne] executes properly on blockchain I think the stock's worth somewhere between $200 and $400," said Marc Cohodes, a noted short seller and independent investor who turned positive on Overstock.com in October. "I own a lot of this thing. I bought a lot more the other day when it pulled back."

 

 

https://www.cnbc.com/2017/12/13/overstock-com-spikes-after-blockchain-unit-announces-for-profit-property-registry.html

[mwtorock]

this is getting into the zone for the amzn/nflx investors. you have to be comfortable valuing high uncertainty high potential situations. a couple of guys i talked with that got into ostk this year both looking at not the valuation but the potential.

 

my estimation of the retail business was $600m a couple of years ago, but they might be able to sell it for more with a strategic buyer. at current market cap, i guess it is not cheap unless you have high confidence in the potential of blockchain businesses. i still feel 20%-30% upside in the short term on catalysts - coin offering and the sale of retail business. at the moment i dont think i will be a holder after the events.

 

 

[DanielGMask]

Sam Antar, former CFO of Crazy Eddie says Overstock shares are highly manipulated.

 

https://whitecollarfraud.blogspot.com/2017/12/thanks-to-marc-cohodes-were-back-to-bad.html

[Green King]

Sam Antar, former CFO of Crazy Eddie says Overstock shares are highly manipulated.

 

https://whitecollarfraud.blogspot.com/2017/12/thanks-to-marc-cohodes-were-back-to-bad.html

 

Lolz, where is the data?

 

[DanielGMask]

I didn’t write it, just sharing the article with those who own the stock!

[KinAlberta]

Sam Antar, former CFO of Crazy Eddie says Overstock shares are highly manipulated.

 

https://whitecollarfraud.blogspot.com/2017/12/thanks-to-marc-cohodes-were-back-to-bad.html

 

Lolz, where is the data?

 

They see no need for data - or reason.   

 

It's been clear for more than a decade now that when it comes to OSTK, there are a lot of severely maladjusted, highly subjective and oh, so, so EXCEEDINGLY BORING personalities out there with never-ending vendettas against each other. Moreover the obvious and potential undisclosed vested interests just make for more such noise in the news-streams that ruin it for normal people.  :(

[Cevian]

jet.com had close to $1Bil of revenues when Walmart bought it for $3.3Bil.

 

Could a case be made that, seeing as Overstock has over $1.6Bil. of revenues, even the retail side alone is worth a bundle to a third party buyer?

 

I believe the current total market cap is slightly over $2.2 Bil.

[Liberty]

jet.com had close to $1Bil of revenues when Walmart bought it for $3.3Bil.

 

Could a case be made that, seeing as Overstock has over $1.6Bil. of revenues, even the retail side alone is worth a bundle to a third party buyer?

 

I believe the current total market cap is slightly over $2.2 Bil.

 

Comparing revenues isn't enough. How fast are those respectively growing? What kind of ROIC are they getting on the growth investments, what kind of margins could they get at a stable rate?

[Parsad]

jet.com had close to $1Bil of revenues when Walmart bought it for $3.3Bil.

 

Could a case be made that, seeing as Overstock has over $1.6Bil. of revenues, even the retail side alone is worth a bundle to a third party buyer?

 

I believe the current total market cap is slightly over $2.2 Bil.

 

Comparing revenues isn't enough. How fast are those respectively growing? What kind of ROIC are they getting on the growth investments, what kind of margins could they get at a stable rate?

 

+1!  We thought Overstock was worth around $35-$40 or 0.5 times revenue conservatively.  It's now fully-priced by the markets...forget about conservatively...and what you've been seeing is more of a mania around any blockchain potential. 

 

That being said, stupid money does very stupid things, and I would not be surprised to see this thing hit $130-150 per share in 2018.  It has propelled from a value-stock into something almost purely speculative now.  Remember Overstock was an $80/share stock 16 years ago, and that was based on internet mania...we saw what happened over the ensuing years. 

 

We've sold about 2/3rds of our position (bought at an average cost of about $14.50) starting at $35 all the way up to just under $86 today.  Don't want to take any more short-term gains, but the speculation is just on a tear!

 

Cheers! 

[no_free_lunch]

It seems that the current valuation can only be justified based on a very successful ICO.  I actually think that is likely given what is happening elsewhere in the crypto-space.  However, the entire process is very opaque. 

 

Beyond the actual process it is very difficult to find information on the terms of the ICO.  There are some press releases/interviews where Byrne mentions that the ICO will be preferrred stock in tzero, but I haven't seen any formal documentation on this.  Right now overstock owns 80% of tzero, what will be their percentage after the ICO completes?  What percentage of the profits do the tokens get and what percentage of the tokens will tzero own?  Given that it is supposed to be sec compliant, shouldn't there be filings on edgar?

[Dazel]

 

 

Congrats Sanjeev! I love to see you do well!

Do you find it somewhat strange-funny that the principle behind a lot of the hype (right or wrong I don’t know)...is Marc Cohodes the driving force behind Rocker Partners that was sued by Fairfax and Overstock? I do....he is very smart guy but it is weird.

 

(Please don’t respond)

 

All the best!

 

Dazel

[Parsad]

 

 

Congrats Sanjeev! I love to see you do well!

Do you find it somewhat strange-funny that the principle behind a lot of the hype (right or wrong I don’t know)...is Marc Cohodes the driving force behind Rocker Partners that was sued by Fairfax and Overstock? I do....he is very smart guy but it is weird.

 

(Please don’t respond)

 

All the best!

 

Dazel

 

Yes, the irony of all of this certainly isn't lost on me!  Overstock went from a decade of being a pariah to celebrated genius with Cohodes.  Weird!  Cheers!

[no_free_lunch]

I will answer my own question.  If anyone is looking for information on the tzero ico, they are filing it under t0 or if you prefer, CIK  0001726726.

 

So far they only have one filing which details the sales to date of the ICO.  There is nothing regarding terms of the deal.  Things are actually a bit slow on the ICO with only $8M raised to 46 investors.  However, I suspect this may just reflect processing delays in validating investor accreditation.

 

I did find in the latest conference call some mention to the ICO from Byrne.  He said that OSTK will own 60-70% of the tzero, down from 81% currently.  Based on those figures, the tzero ico would own 15-25% of tzero, with $250-300M raised.  If they are able to pull that off, that would imply a valuation of tzero at $1B-1.5B.  OSTK's share would be $600M to $1.1B.

[rkbabang]

I will answer my own question.  If anyone is looking for information on the tzero ico, they are filing it under t0 or if you prefer, CIK  0001726726.

 

So far they only have one filing which details the sales to date of the ICO.  There is nothing regarding terms of the deal.  Things are actually a bit slow on the ICO with only $8M raised to 46 investors.  However, I suspect this may just reflect processing delays in validating investor accreditation.

 

I did find in the latest conference call some mention to the ICO from Byrne.  He said that OSTK will own 60-70% of the tzero, down from 81% currently.  Based on those figures, the tzero ico would own 15-25% of tzero, with $250-300M raised.  If they are able to pull that off, that would imply a valuation of tzero at $1B-1.5B.  OSTK's share would be $600M to $1.1B.

 

I went through the verification process completely and was informed that from Dec 16 - Jan 16 the ICO was open to a "select group" of investors only (I did not make that cut), and Jan 16 - Feb 16 it will open to all verified accredited investors.  I was expecting to be given some type of information like a prospectus or an info packet or something, but so far I have been sent nothing.  Hopefully they will provide some details before Jan 16.  I don't know if I would invest anyway, but I certainly won't be throwing money into a black box.