OSTK Q1 2013 Results

[gsurowiec]

http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol-newsArticle&ID=1808187&highlight=

 

Revenues up 19%

Contribution $ up 22%

 

Some good color on the conference call - Glenn

[Parsad]

http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol-newsArticle&ID=1808187&highlight=

 

Revenues up 19%

Contribution $ up 22%

 

Some good color on the conference call - Glenn

 

Glenn, don't you know that this company has no moat and is not a very profitable business!  ;D  That Patrick Byrne is one crazy mofo...it will never make money.  A couple of guys from the Motley Fool OSTK board can kiss my ass, along with Sam Antar, Gary Weiss and Tracey Conen.  Five straight quarters of profitability!  Cheers!

[Mephistopheles]

http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol-newsArticle&ID=1808187&highlight=

 

Revenues up 19%

Contribution $ up 22%

 

Some good color on the conference call - Glenn

 

Glenn, don't you know that this company has no moat and is not a very profitable business!  ;D  That Patrick Byrne is one crazy mofo...it will never make money.  A couple of guys from the Motley Fool OSTK board can kiss my ass, along with Sam Antar, Gary Weiss and Tracey Conen.  Five straight quarters of profitability!  Cheers!

 

Hi Parsad. I used to own this stock when it was extremely cheap at $5 and sold prematurely between $7-10. Would you be able to expand on what the moat here is? I am having trouble seeing how OSTK will be strong and thriving 10 years from now as Amazon gets larger and larger. Thanks.

[Parsad]

http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol-newsArticle&ID=1808187&highlight=

 

Revenues up 19%

Contribution $ up 22%

 

Some good color on the conference call - Glenn

 

Glenn, don't you know that this company has no moat and is not a very profitable business!  ;D  That Patrick Byrne is one crazy mofo...it will never make money.  A couple of guys from the Motley Fool OSTK board can kiss my ass, along with Sam Antar, Gary Weiss and Tracey Conen.  Five straight quarters of profitability!  Cheers!

 

Hi Parsad. I used to own this stock when it was extremely cheap at $5 and sold prematurely between $7-10. Would you be able to expand on what the moat here is? I am having trouble seeing how OSTK will be strong and thriving 10 years from now as Amazon gets larger and larger. Thanks.

 

Their margins and operating costs are lower than Amazon's.  Like Costco, they will make money and exist even though Walmart is the dominant player.  Cheers!

[original mungerville]

Parsad,

 

Good to see OSTK finally solidly in the black given all the history with the shorts. If you are comfortably providing it, I would appreciate your view on its fair value in terms of a range.

 

 

 

 

[Mephistopheles]

http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol-newsArticle&ID=1808187&highlight=

 

Revenues up 19%

Contribution $ up 22%

 

Some good color on the conference call - Glenn

 

Glenn, don't you know that this company has no moat and is not a very profitable business!  ;D  That Patrick Byrne is one crazy mofo...it will never make money.  A couple of guys from the Motley Fool OSTK board can kiss my ass, along with Sam Antar, Gary Weiss and Tracey Conen.  Five straight quarters of profitability!  Cheers!

 

Hi Parsad. I used to own this stock when it was extremely cheap at $5 and sold prematurely between $7-10. Would you be able to expand on what the moat here is? I am having trouble seeing how OSTK will be strong and thriving 10 years from now as Amazon gets larger and larger. Thanks.

 

Their margins and operating costs are lower than Amazon's.  Like Costco, they will make money and exist even though Walmart is the dominant player.  Cheers!

 

Do you mean to say the margins are higher?

 

I haven't done much research on Amazon, but one concern I have is: what about them willing to expand at all costs; so you said that their operating costs are higher, but it seems as if they don't really care to make much income at all in the short run. And in the long run, if they are large enough, are you afraid of them having the scale advantage over OSTK?

 

Also, AMZN is building distribution centers in major metropolitan areas, so I'm wondering what are your thoughts on them providing quicker shipping than other internet retailers in the future, which may provide a threat for OSTK. Thanks!

[Parsad]

Parsad,

 

Good to see OSTK finally solidly in the black given all the history with the shorts. If you are comfortably providing it, I would appreciate your view on its fair value in terms of a range.

 

$1.00-1.20 a share in 2013 earnings.  Give it a 15 times multiple and you get $15-18 for this year.  Adjust that number based on how you think they can grow it...if better than 10% annual growth in revenues, give it a 20 times multiple.  If less, give it a lesser multiple.  I think if they focus on the direct business, keep costs low as they are doing, they can grow at 10% annually for at least 10-15 years...that's relatively conservative considering the size of the market and how small they still are.  But they have to keep the retail aspect fresh year after year...very difficult unless you are the dominant player like Amazon where people go to you regardless.  Cheers!     

[Parsad]

http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol-newsArticle&ID=1808187&highlight=

 

Revenues up 19%

Contribution $ up 22%

 

Some good color on the conference call - Glenn

 

Glenn, don't you know that this company has no moat and is not a very profitable business!  ;D  That Patrick Byrne is one crazy mofo...it will never make money.  A couple of guys from the Motley Fool OSTK board can kiss my ass, along with Sam Antar, Gary Weiss and Tracey Conen.  Five straight quarters of profitability!  Cheers!

 

Hi Parsad. I used to own this stock when it was extremely cheap at $5 and sold prematurely between $7-10. Would you be able to expand on what the moat here is? I am having trouble seeing how OSTK will be strong and thriving 10 years from now as Amazon gets larger and larger. Thanks.

 

Their margins and operating costs are lower than Amazon's.  Like Costco, they will make money and exist even though Walmart is the dominant player.  Cheers!

 

Do you mean to say the margins are higher?

 

I haven't done much research on Amazon, but one concern I have is: what about them willing to expand at all costs; so you said that their operating costs are higher, but it seems as if they don't really care to make much income at all in the short run. And in the long run, if they are large enough, are you afraid of them having the scale advantage over OSTK?

 

Also, AMZN is building distribution centers in major metropolitan areas, so I'm wondering what are your thoughts on them providing quicker shipping than other internet retailers in the future, which may provide a threat for OSTK. Thanks!

 

No lower margins.  They should really be running at 2-2.5% net profit margins since they are not the dominant player.  They will also have to focus on the niche market...specific age brackets...women 35-60 is ideal for them.  If they do that they will grow market share in a very specific area and they will not have to concern themselves with Amazon. 

 

You know a very good analogy would be this message board.  There are so many message boards out there correct...far bigger than this one?  But we've grown readership about 40% a year for the last four years on here.  If we tried to be all things to all people, it wouldn't work and we would lose our niche.  We have a very specific mandate and that allows us to build our base of members.  Overstock has to do the same...they do not want to take on Amazon head on...it would be a very short shelf-life.  They need to focus on a niche market, keep margins and costs low, and appeal to a very specific demographic.  Cheers!

[Guest hellsten]

The transcript from the earnings call is out:

http://seekingalpha.com/article/1352361-overstock-com-ceo-discusses-q1-2013-results-earnings-call-transcript?part=single

 

Transcription quality is not very good… I'm including the good parts for future reference:

 

Quarterly revenue growth, I’ll just point out that we would now been spinning up for one, two, three four, five quarters, we are happy at 19%, where we continue to accelerate and we are happy. We think of the industry as 15% or even less and in fact if you separate the tier plays, there are couple of that are well above that, Amazon of course is heavily weighted. But most of the tier plays are actually, if you go into internet retailer and you see their breakdown as I recall at our site, you see the most of the tier plays are single digit and so we are very pleased with 19% and that’s accelerating briskly.

 

Contribution dollar growth is what we are focused on here and all our thinking in economics analyses around, that it’s up at 12.9 that’s the high end of the range, that I think it’s healthy. Last I checked it’s actually about the same as Amazon, when you take they do some book keeping different way than we do. But when you take everything together basically the gross margin minus marketing and logistics cost, and I think they come up at the same place and this is about where, this is the higher, I think about as higher as we wanted to go. I think 12.0 to 12.9 even that is par with our range of 12.5 to 12.9 in terms of healthy and long term models.

 

I think that we might be able to do better than that. But I am quite happy at 22%, if we grew the contribution this business 20% for years and we can easily manage our tech and G&A now or such that we gush fast, that this is a very profitable business. Even 15% contribution growth is easy, say keep going forward, as you stretch that out a few years and then you just model it, say well, assume about half of that sticks to our red and half could be up in new expense, all the time, which I think is a reasonable goal. You see how quickly our earnings growth occurs.

 

This is very good news:

We have a very strong technology group now. We are able to innovate very quickly. We have all kinds of algorithms and things coming live, which make a big deal, which collectively make a large difference and is responsible for much in improvement you’re seeing.

 

 

Free cash flow, cash flow from operations $48.7 million, $32 million. That’s a healthy robust business, lots of cash flow.

 

 

GMROI, slide 12, 997%. That is our total gross margin return on invested capital. That’s fantastic.

 

you see that the average order size for us has grown really in six quarters from, I think it was a 110 or so in Q4 2011, now going to a 153 and up from a 126 Q1 last year. That’s great. We are getting the same number of customers. Yes we will are paying a little bit more for them, but, they are much better customers.

 

And slide 16, the gross profit per transaction you see is up, 26%.

And that’s all credit to our marketing department and our sourcing; corporate employees have a 9% increase which I think is healthy, that’s half our gross. And yet the truth is we have so many projects we can do. It’s just amazing. Every week some projects come out and we can see that they are giving us at 1% less or 1.5% less. It’s just a matter of how many of them can we grind to the machine. If we’re getting more tech employees, I’d love that.

 

I thought we were about to just gush a river of profits Q4 2008 took a very bad turn for us. We started coming back, ’09 we made money, 2010 we made more money. 2011, I screwed up with my O.co decision, but we bounced back in 2012 from a not even a standing start, from a ending 2011 on a really, really solid oath.

Dave Nielsen

 

I think the international piece for us is definitely all lead to that question that is, that’s the big future for us and we are excited what’s coming.

 

Patrick Byrne

 

Yeah and most pure plays are the big pure plays basically half their business is domestic and half borne and in our case it’s about, I think 98 and 2, so if we were able to get through just the same ratio as the other pure plays that would essentially double the business.

 

But now it’s so much, much of it has become real time, the big data driving without almost without human intervention.

 

We think that this kind of growth rate or even more, may be you knew normal for us, until there is some exogenous shock.

 

Patrick Byrne

 

And I would add to that, yes, you have seen us through seven fat years and seven lean years roughly and I think seven fat years from here on now would be a very profitable seven years, so more cash.

 

Key points for me were:

- Patrick thinks growth can continue at same pace or even accelerate.

- It took a while, but OSTK has managed to build a good technology department. I hope they continue to invest in innovation.

- They seem to take international growth seriously now.

[Guest valueInv]

Parsad,

 

Good to see OSTK finally solidly in the black given all the history with the shorts. If you are comfortably providing it, I would appreciate your view on its fair value in terms of a range.

 

$1.00-1.20 a share in 2013 earnings.  Give it a 15 times multiple and you get $15-18 for this year.  Adjust that number based on how you think they can grow it...if better than 10% annual growth in revenues, give it a 20 times multiple.  If less, give it a lesser multiple.  I think if they focus on the direct business, keep costs low as they are doing, they can grow at 10% annually for at least 10-15 years...that's relatively conservative considering the size of the market and how small they still are.  But they have to keep the retail aspect fresh year after year...very difficult unless you are the dominant player like Amazon where people go to you regardless.  Cheers!   

 

Do you still hold your position?

[Parsad]

Parsad,

 

Good to see OSTK finally solidly in the black given all the history with the shorts. If you are comfortably providing it, I would appreciate your view on its fair value in terms of a range.

 

$1.00-1.20 a share in 2013 earnings.  Give it a 15 times multiple and you get $15-18 for this year.  Adjust that number based on how you think they can grow it...if better than 10% annual growth in revenues, give it a 20 times multiple.  If less, give it a lesser multiple.  I think if they focus on the direct business, keep costs low as they are doing, they can grow at 10% annually for at least 10-15 years...that's relatively conservative considering the size of the market and how small they still are.  But they have to keep the retail aspect fresh year after year...very difficult unless you are the dominant player like Amazon where people go to you regardless.  Cheers!   

 

Do you still hold your position?

 

We had trimmed the position last time it hit $16 to a 5% position.  It's still there and we won't sell any of that stock, as the cost basis is very low and we have a ton of gains.  Cheers!

[Mephistopheles]

 

No lower margins.  They should really be running at 2-2.5% net profit margins since they are not the dominant player.  They will also have to focus on the niche market...specific age brackets...women 35-60 is ideal for them.  If they do that they will grow market share in a very specific area and they will not have to concern themselves with Amazon. 

 

You know a very good analogy would be this message board.  There are so many message boards out there correct...far bigger than this one?  But we've grown readership about 40% a year for the last four years on here.  If we tried to be all things to all people, it wouldn't work and we would lose our niche.  We have a very specific mandate and that allows us to build our base of members.  Overstock has to do the same...they do not want to take on Amazon head on...it would be a very short shelf-life.  They need to focus on a niche market, keep margins and costs low, and appeal to a very specific demographic.  Cheers!

 

So are you saying there is a tangible reason why women 35-60 are turned off by amazon? I'm assuming that almost everything that is offered on Ostk can be bought on amazon. Or if not, amazon seems to be willing to sell anything and everything. I get what you're saying about this board and how it thrives even though there are much bigger boards out there. But I'm having trouble seeing how this applies to retail, particularly Internet retail. What attracts the niche customer to Ostk? and if amzn provides the same goods currently or eventually with cheaper or faster service, why would people stick with Ostk?

[Parsad]

 

No lower margins.  They should really be running at 2-2.5% net profit margins since they are not the dominant player.  They will also have to focus on the niche market...specific age brackets...women 35-60 is ideal for them.  If they do that they will grow market share in a very specific area and they will not have to concern themselves with Amazon. 

 

You know a very good analogy would be this message board.  There are so many message boards out there correct...far bigger than this one?  But we've grown readership about 40% a year for the last four years on here.  If we tried to be all things to all people, it wouldn't work and we would lose our niche.  We have a very specific mandate and that allows us to build our base of members.  Overstock has to do the same...they do not want to take on Amazon head on...it would be a very short shelf-life.  They need to focus on a niche market, keep margins and costs low, and appeal to a very specific demographic.  Cheers!

 

So are you saying there is a tangible reason why women 35-60 are turned off by amazon? I'm assuming that almost everything that is offered on Ostk can be bought on amazon. Or if not, amazon seems to be willing to sell anything and everything. I get what you're saying about this board and how it thrives even though there are much bigger boards out there. But I'm having trouble seeing how this applies to retail, particularly Internet retail. What attracts the niche customer to Ostk? and if amzn provides the same goods currently or eventually with cheaper or faster service, why would people stick with Ostk?

 

You tell me?  They sell $1.2B of products a year...someone is buying it.  Investors often get wrapped up into how a smaller business will survive around other retail giants.  They do survive...not always and not all circumstances...but generally they create a niche market that the larger retail giant cannot adequately serve.  How do smaller dollar stores survive with Walmart around if this isn't possible in retail? 

 

It's possible in any industry if the smaller business is serving a very specific need.  This is how Blackberry will end up surviving.  How Five Guys or In&Out compete against large chains.  It's how See's sells so much chocolate and has a very high ROI.  Overstock.com can survive and thrive if they focus on servicing their market, rather than the broader market Amazon serves.  Cheers!

[Guest hellsten]

Up 30% yesterday and 20% today. Volume 320,192.00 so far today. Average volume 126,398.00. I wonder if this is the long-awaited short squeeze.

 

[Guest hellsten]

Is Overstock.com Becoming a New Economic Indicator?

http://247wallst.com/2013/04/19/is-overstock-com-becoming-a-new-economic-indicator/

 

Overstock is partially becoming a play on housing, and that makes this perhaps the “Frugal and Informed Home Shopper Index.” You could easily say the same thing about Amazon.com and other online destinations, but go look at the new Overstock.com website and you will see a site that has many more higher-end items, not the hodgepodge you may remember from years past.

 

To show just how out-of-favor this stock had become, Bank of America/Merrill Lynch just raised the rating to Buy with a $20 price target on Friday. What is so different about this call is that it represents a total reversal of expectations. Merrill Lynch previously had the rating at Underperform, and with only a $12 price target.

 

Even after yesterday’s big gain, the stock is up 15% at $18.00 in what is already triple the normal volume in just 20 minutes of trading. The new market cap, even after the past two days worth of gains, is about $416 million.

 

;D

[original mungerville]

Sanjeev,

 

Thanks for your feedback on valuation, that is exactly how I am looking at it.

 

Its conservative. Given my very sour views on macro, I like companies with high growth potential and certainly internet retail is growing faster than retail overall. I feel with the higher growth, they can kinda to some degree reach escape velocity from the dour macro picture. Anyway, that's not the main investment thesis. The investment thesis is valuation, Byrne, cost structure, high ROC over time given "inventory" turns (they don't really have inventory). But I like Byrne, he's crazy but I like it....loca loca loca.

 

 

 

 

 

 

 

 

[original mungerville]

OSTK is profitable and growing now while Amazon is running the business just over break-even - ie OSTK is competing despite this kind of competition. That has to tell you something good about OSTK's niche.

[kmukul]

Congrats Prasad :) Money is always good. Will the same strategy make sense for apple also? earnings are around the corner and stock is trading as if they will have a big downward surprise

[Parsad]

Congrats Prasad :) Money is always good. Will the same strategy make sense for apple also? earnings are around the corner and stock is trading as if they will have a big downward surprise

 

I will let you know!  ;D  Cheers!