Don’t Shoot Me, I’m Only The Messenger

Have you ever run a business? You’re grading these projects in less than 12 months. You expect instant blockbuster success, that seems a little rediculous to me. Most successful businesses and projects are not overnight successes, they take time. You gotta be more realistic and objective before you start throwin the tomatoes in my opinion.

Thus writes a reader in response to yesterday’s “Overstock Cruises in With a Cool 14”—in which I noted the flat-lining of Overstock.com’s “Build Your Own Jewelry” site as well as the failure of the Overstock.com auction site to attract much in the way of actual paying bidders, despite what appears to be a whole lotta listings going on.

It’s a worthwhile point to make: most of us Wall Street types have never run an actual business, let alone coped with the day to day stress of working for a start-up with no customers, no revenues, and no idea what tomorrow will bring.

But, for starters, I have in fact run a business…for twelve years. And more importantly, I’m not the one who expected “instant blockbuster success” for anything Patrick M. Byrne had something to do with.

Personally—and I say this with complete candor—I expect very little from whatever businesses Patrick M. Byrne initiates, because I don’t believe 1/10th of what he says. And for that reason I certainly never expected “instant blockbuster success” of any kind from Project Ocean or Project Propeller, Build Your Own Jewelry or Worldstock…earnest and well-meaning and high-minded as those efforts might be.

That’s my own personal point of view, and it may not be shared by anybody else on the planet, which is fine. (It also has nothing to do with the valuation of Overstock.com shares, about which I have never ventured an opinion here, positively or negatively, because valuation is inherently subjective; and what we’re talking about here are demonstrable, quantifiable facts.)

The one who might be blamed for raising expectations of “instant blockbuster success” is Patrick M. Byrne himself, who wrote the following words during last fall’s launch of Overstock’s auction site:

9/30/04: just giving an idea of how fast this is taking off…since our launch last Friday: …Sometime around 5 A.M. this morning we passed the mark of 4,000 auctions. 66% of completed auctions are clearing (I think eBay is 44%?)

Three weeks later, Byrne again compared his site to eBay:

10/22/04: It’s– so far, my belief is, it’s far faster growth than eBay saw in their first 15 days or 20 days.

And three months on, Byrne was still claiming great things for Overstock Auctions, including a “closing rate” which, for any online auction site, would confer the kind of “blockbuster success” Wall Street seemed to expect from Overstock:

1/28/05: [Our auction conversion rate is back] to the 35 to 40 range…. They [eBay] say that they have a closing rate in the 40s…. But if you remember they count it differently than us. …I wouldn’t say we are higher than them but…

Believe me: I never expected “instant blockbuster success” for Overstock auctions. The man who raised the great expectations on Wall Street was Patrick M. Byrne.

Which brings us to Mr. Byrne’s latest public utterings in yesterday’s press release explaining the reason for the delay of Overstock’s second quarter earnings:

Overstock.com President Patrick Byrne said: “Please excuse the schedule change. I understand that this is an inconvenience for those who follow Overstock. The fact is, however, that in July we are completing our Oracle and Teradata system installations, integrating our recent Ski West acquisition, and relocating our corporate headquarters: thus, we simply need some additional time to complete our quarterly financial closing process.”

Now, we know Teradata’s Phase #1 completion date was expected to be last month, or at least that’s what Patrick wrote to shareholders in the first quarter letter:

Teradata — Data warehouse noted above. Expected Phase #1 completion: June.

And the Oracle “system installations” were expected to be completed in May-June, or at least that’s what Patrick wrote to shareholders in the first quarter letter:

Oracle 10g — Our auction site runs on Oracle 10g. We will roll our B2C site from Oracle 9i to 10g. Expected benefit: faster recovery times and ability to hook disparate computers into one “grid” cluster. Expected completion: May – June.

It is now July 13.

One other thing. Back on April 22, Patrick wrote to his shareholders, “In June we will move from our current space to a much larger building being completed a few hundred yards away.” Yesterday, July 12th, he blamed part of the earnings delay on “relocating the corporate headquarters.”

Looks like a few more great expectations in the rich tapestry of Overstock.com are unraveling. But don’t shoot me, I’m only the messenger.


Jeff Matthews
I Am Not Making This Up

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.