Overstock -- Any Still Following The Stock

[JEast]

I know most, if not all, of us have been following the Deep Capture chronicles and the naked short story for some time now. However, I have not seen any posts on the stock in sometime.

 

Irrespective of the stock aspects, I shop at Overstock and have experienced excellent customer service when needed. Since they have gone international now, I thought some may be interested in even a better shopping deal. Since I pinch nickels if I can, attached is a view of how you can get an extra 5% off at Overstock even above their already low prices. Shop thru the Discover Card portal.

 

 

Cheers

JEast

[watsa_is_a_randian_hero]

I still have 100 shares, just to keep on radar.  A lot of optionality here.

[collegeinvestor]

No equity. No income. Online stores are EXTREMELY competitive. How is this company  priced so high in the market?

[Nnejad]

I recently invested.  Overstock's fulfillment business will continue to be a gem.  Lets say you have something unique and different you're trying to sell; post it on Amazon, and it gets lost within the millions of other items.  On overstock, you're more likely to find an audience.  It has other advantages for vendors as well:

 

vendors can use multiple channels at once;

some are more concerned with faster sales than better terms;

there's a menu cost with using the biggest competitor (too many goods means you'll get ignored);

 

For customers, i'd say its the best place to look for out of the ordinary purchases.  For example, I just bought my girlfriend jewelry from Worldstock- their section which showcases a collection of goods from artisans all around the world: Ghana, India, Morocco, etc..  It's beautiful, unique, and it was cheap.

http://www.overstock.com/Worldstock/Top-Sellers,/top__sellers,/6/store.html

 

How successful has it all been?  From 2004-2008, revenue from fulfillment grew 24% annually.  The recession has slowed it down in 2009, yet sales are still up 2% for the 9 months.  For the latest 3 months, sales were up 6.6%.  I think Q4 will be nearer to 15%.

 

Finally, they've set up logistics for international sales and they are also beginning operations around the world.  To any extent that they are successful in using their US expertise and concept internationally, then that's even more potential.

 

As for competition; throughout all this growth for itself and its competitors, gross margin has actually been trending up rather than down.  And as long as sales keep increasing, they'll generate extra cashflow from its favorable working capital structure. (they receive payment upfront, they pay vendors later).

 

I think the future is bright.  Chart's attached.

 

 

[collegeinvestor]

What are their barriers to entry if, lets say that they actually do end up spitting off cash flow?

[Nnejad]

Name recognition. Advertising budget.  Trusted vendor relationships.  Site infrastructure costs.  Working out the kinks of the business.

 

It's an extremely difficult business to start up- you're going to lose a lot of money in the first seven years.  Look at amazon from 1996-2001.  They lost 2 billion dollars in operations.  I wouldn't have any faith in a new online competitor coming into the market today.

 

Overstock has come up with a niche model that makes business sense.  I think it will be able to earn attractive returns in it.

[collegeinvestor]

Its actually pretty cheap to start up a e-commerce website. Perhaps a website "as big as overstock" might not be created but there could be smaller websites that permeate overstock.com's market share in an instant. There is no moat, imo. If there is one, its not big again imo.  :-*

[Parsad]

I think there were several errors in Overstock's development.  Early on, they built the system to handle far more customers than actually appeared.  Roughly two and a half years were lost retrenching and resizing infrastructure.  The second mistake early on, and not corrected until the downsizing, is that they were trying to do too much direct business and not enough fullfilment/affiliate business.  The margins are better on the latter with far less capital involved. 

 

You are now seeing cash flows hit the bottom line.  They will be profitable in 2010.  Is it sustainable long-term?  Depends on the moat, management and the quality of people they put in place.  Online retail is extremely cut-throat.  Tough to maintain moats and Overstock's isn't large enough yet...but there's potential.  We have owned Overstock equity three times in the last four years.  We've owned Overstock debt as well in the last year.  We've made money on every investment in Overstock.  It's been a trading stock, because of the number of mistakes, short-selling and co-ordinated campaigns against the company.  It's been very volatile for five years now.  Cheers! 

[claphands22]

Does Overstock compete directly with Amazon in terms of their fulfillment business? 

[value-is-what-you-get]

In my opinion one of the headwinds Overstock faces is it's name - "Overstock" = "didn't sell" = "no one wanted it".  This is a barrier to first time users.  It only appeals to a certain part of the market.  A name change would boost sales.  ("Priced Right" - "A Penny Saved" etc)  Agree with Sanjeev - it's a good trading stock!