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Great Quarter, Guys!


Well, I was wrong.

Overstock reported, and they missed the Street’s operating income number by 50%, coming in at a $6 million loss versus the Street’s $4 million-plus forecast.

In true Patrick Byrne fashion, of course, Overstock masked the bad news by including a one-time $4 million gain in the reported number—making no mention of the gain in the press release discussion of income items, as far as I can see.

Rather than include the $4 million one-time gain in the headlines or the introductory paragraph, it is buried at the bottom of Patrick’s list of “mud-pies and cream-pies,” which never seem to go stale at Overstock.

They just keep baking more.

The CEO’s letter is, of course, full of the usual technology-heavy nonsense Byrne likes to employ when he wants to keep attention away from the business itself, which is slowing and losing money.

But if you read carefully you will see that “Project Propeller” has twirled away and the rest of the fanciful dreams and yearnings of the CEO can be summed up in the rather pathetic note that the Teradata implementation was so quick, “I believe we have been invited to speak at a conference on just this theme.”

Well, Patrick, you’re certainly not being invited to speak at a conference on how to run a great company.

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.

41 replies on “Great Quarter, Guys!”

Patrick tells the listeners that he believes its important the stockholders are well informed and than goes on about this naked shorting stuff…Patrick, how about the “deal of a lifetime” and the sale of 126 diamonds over the weekend that Jeff pointed out ? Please, inform the stockholders

I love the mudpie/creampie section.
Inbound freight and MARKETING as 1 time expenses? Come on. The new office will require another million in G&A, so add that right into next quarters loss. Not to mention it sounds like overstock is going to need to do some hiring to support the growth.

Patrick looks like he’s just finding out that running a large scale computer operation is extraordinarily expensive. The equipment, software, and people to support it costs lots. Anyone that works for a bank could tell you that. You need a lot of incoming money to support and grow it.

The other thing I don’t get about overstock.com – Doesn’t anyone remember Onsale.com? Aren’t these companies almost exactly the same? Onsale grew it revenues exactly like Overstock is doing – which was great, except that the business model never made any money. Onsale.com tried a whole bunch of schemes to try to make it profitable – I think the last one was to sell everything at cost, and make money of advertising on the site – until it folded.

Can any Overstock bulls (I know there are some that read this board) tell me how these company’s business models differ? I’m not being fecitious.

Patrick Byrne spend 17% of the conference call (removing the perfunctories from the transcript) talking about naked shorting. That’s quite odd.

Also, if his father is going to be chairman, why not just announce it when it’s done? What’s with the “we’re going to ask him and we hope he will serve if elected?” Talk about puffery. I believe it’s manipulative to talk about the prospect of a respected businessperson joining your board as chairman when he hasn’t even been asked to do so, much less accepted the position. I don’t care what the family realtionship is, that is puffery at its worst. I would love to see Jack Byrne tell him no. Methinks PB has a screw loose.

I’ve generally stayed away from this discussion as I’ve no interest in the company in either direction.

However, I am struck between the difference between the CEO of OSTK and one of my early bosses at Morgan Stanley back in the 80s. At the time we were setting up the first global trust and operations businesses, and had hired a pretty senior guy from one of the major commercial banks who dominated the business. Our take on things was that we were going to do it better and cheaper by leveraging our existing technology edge. And we would pull the Europeans and Asians who wanted to do business with us along. Anybody who “wouldn’t play ball” technologically, would eventually be left behind. It was a techie’s dream: using real technology to revolutionize a business.

But the guy running the business put things in perspective. His statement was simple: “Our customers don’t care whether we deliver superior service by using the best technology, or if we just have a room full of a million monkeys in front of a million keyboards. To them it’s all the same.”

I wrote down his comment the day he made it. As I’ve moved ahead into more and more senior technology roles, I’ve often posted it above my desk.

More often than not, I’ve found that the good leaders and CEOs I’ve worked with are the ones who are skeptical about technology. They understand its benefits, but also its costs. They focus their attention on what it takes to satisfy the customer and hire strong, capable IT guys (like me???) to figure out the most cost-effective ways to make it happen. They don’t go around talking about their technology successes or bragging about vendor conference invitations because they know that in the end that’s not what their business is about.

The ones who are enamoured with their organizations’ technological capabilities are the ones to watch out for. They’re often spending too much money and too much time on “cool” technologies. I’ve known at least a couple cases where the technology strategy (or lack thereof, usually it’s inexperieneced technology managers run amok) has killed the company.

From what I’ve seen, the OSTK situation resembles the latter type of company fare more than the well-planned strategies of my old MS Global Securities days.

-btc

On top of which, Xmas season approaches and they are to go profitable next year. I can’t make that up and Jeff can’t stop it.

Good luck with your shorts (friends and all).

I must confess, I find this whole debate rather fascinating. In fact, fascinating enough that I actually thought I’d try to see what you people find so compelling to argue about.

So I downloaded the earnings call slides.

First impression: Of an 83 slide presentation, I counted:

34 slides related to shorts/longs, etc. 40.96%
32 slides addressing the business results and analysis: 38.55%
9 slides related to IT matters: 10.84%
3 “bureaucratic” slides (safe harbor, xfer agent, lawyers): 3.61%
2 title slides (front and back): 2.41%
2 slides addressing other financial matters (buyback, acquisition): 2.41%
1 completely irrelevant (literary quote): 1.2%

It would seem that based on the number of talking points in the presentation, OSTK think that the most important thing for their shareholders to know about are various stock machinations, the business itself is the second most important and that IT matters are the third most important thing.

A major acquisition seems to be an afterthought, thrown in after the lengthly discussion of the IT architecture.

As an investor, I have to say that the focus seems to be screwed up.

As a senior IT type, I find the discussion of the IT architecture to be laughable. Presenting this stuff to Wall Street??? I wouldn’t normally present this kind of stuff to most C-level execs! The stupider ones would listen and not understand a thing, the smarter ones would wonder why I’m telling them about stuff that is well below the level they’re working at, and the smartest ones would recognize that spending lots of time on this usually falls into the category of “trying to bamboozle with…” well, you know with what.

-btc

Just wanted to throw in a comment or two,

I think it’s reasonable to back out the gain on the debt buyback. After you do that, ya, they lost a little more than expected, thats business. However, can any of you guys convince me that the model is doomed? The only rational I can come up with is that you guys think that the bus. won’t scale and if they shut down the mrktg spend the sls will fall of a cliff. The repeat number suggests the opposite, that ostk has some of the more finatical customers on the internet. The fact is ostk dominates the industry. The industry is real, not some passing fad, so what makes you think that ostk will lose its leadership position and fail?

TIA
bsilly

You know I love the mudpie from Claim Jumpers (western mining theme restaurants in CA and WA).

I read con call notes from another blog. I think Patrick kind a behaved. Was Bobo O’Brien on the call? Those 2 were like Abbott and Costello on last concall ranting on naked shorts like Don Quixote and his servant rady to charge ap the windmill. LOL

Here are the “holes” I see:

1. Notes that most of the operating loss came from Technology spending.
Really? I like to read the fine details as it certainly sounds like accounting shell game. Defer expense or better yet put expenses into IT bucket.

Heck what about this ridiculous $1 shipping? Huh? LOL

2. Total revenues were $151M | 14.7% gross margins | – operating expense were higher due to technology costs and marketing expenses.
If GM is still in 15% range then why the continuing LOSS? Tech and marketing expenses are cost of doing biz!

3. Asking his father to be the Chairman.
Ah, plot thickens… Hey it’s my family biz and we suck the money out to enrich our family at shareholders (longs that is) expense. Brilliant!

4. Ski West – notes that last year their revenue was $30M / income of $1M and this year the plan is for $60M and $2- $2.5M in income. Notes they are growing at faster than 100% pace
Isn’t SW private company? Who audited this claim? Sure grows 100% BUT making money yet?

5. Notes Travel is in the high margin areas… and have locked several hundred properties. States they will not take on Orbitz on a full scale travel offering.
Kidding me? Hell, even your pal Motley is frustrated with “travel” site which still says “flight, car, hotel coming soon” FOR MONTHS!

Take on Orbitz? Now this gotta be the FUNNNIEST I’ve heard all day!

6. Discussed the strategy of shorting puts against the common, and how the company used a structured transaction to purchase stock in for the buyback program.

Sure but didn’t OSTK lost boatload of money with their call options last quarter?

STOP GAMBLING with shareholder’s money!

More BS CON as usual and the attacks on shorts…

Keep up the good work Jeff!

bob-

the elephant in the room is that this is the 10000000th time we’ve heard this before from you and patrick. so the shorts get burned… ok. doesn’t change the fact that this is a hyper-growth UNPROFITABLE business. At the end of the day, the shorts will get killed and soon after the longs will go down with this heap of a business. Accelerating negative operating margins does not make a good business model.

I have removed more than a few comments that should have been posted on Yahoo, not here.

This particular commentary was about Overstock, the earnings and the press release, not about the shorts or the longs or name-calling.

“belowthecrowd” made a very wise observation about the delusion of heavy technology spending by consumer-driven businesses, and presented a terrific analysis of the Overstock conference call and slide show, and I hope everyone reads them both.

“Bob O’Brien” has been deleted and will be every time. Patrick Byrne may allow on his conference calls a man who divulges women and children’s names on message boards; but I will not allow him here.

Does anybody know why Patrick seemed so defensive about his former Treasurer, Kathryn Huang Hadley, leaving the company? After all, Patrick had already announced her departure on a previous call, so it should have been no surprise–and no reason to go into it again.

Informed opinions are welcome. People with knowledge who do not want to post here are welcome to email me at the confidential address listed on the front page.

Tim, it’s just more then myself, Bob, Patrick, and all OSTK shareholders saying they’ll go profitable next year (see the analyst coverage), so unless they blow, I think it’s 120M left in cash, in the next year, I just don’t see it happenning. In as many times as you and others have accused us of touting this thing, let’s at least take “the company is going down in flames” argument off the table. Besides, they’ve reiterated their guidance for the rest of the year.

And those making a big deal about the $1 shipping thing, you do realize their standard shipping rate is $2.95 right?

I really don’t know what the full short argument is on this thing, but it’s clear these guys are

1. Burning a lot of cash ($70M in H1 2005),
2. Have deployed $51M YTD to reduce capitalization (an indication of management hubris), which is interesting given their FCF,
3. Have invested a further $48M YTD going long their stock ($71M total, given the share buybacks,
4. Have a very rickety operating infrastructure that is costing them lots of money to upgrade,
5. Are poor merchandisers, though that’s just the opinion of a retail/consumer analyst (me),
6. Have a poorly-designed, rickety website, though that’s just the opion of a guy that worked for a consumer-facing .com for four years (me),
7. Have a management team given to puffery (the Chairman thing yesterday was ridiculous),
8. Have a CEO who spends way more time on conference calls, in planning conference call slides, and probably in his daily dealings tryint to right the wrongs of the equity market than actually talking about or managing the business,
9. Displays an obsession with short sellers, a time-tested indicator of which companies will eventually crash and burn, and
10. Dominates the online segment of a very small slice of retail, so it’s basically a big fish in a small pond.

Those are just my observations — I’m neither long nor short.

One correction to a number tossed out by “mfairview”: OSTK did indeed have $120 million in cash at the end of the quarter, but they subsequently bought Ski West for $25 million in cash, bringing gross cash down to $95 million.

But they also have $84 million worth of convertible notes that are far out of the money and not likely to be converted to stock.

So true net cash available for baking more mud pies and cream pies is only $11 million.

I just listened to the conference call again and with Patrick’s record how can anyone believe these revenue and earnings goals he has laid out for 05, 06 ? Does OSTK have the cash to last until 06 without a secondary or some other method ? ….Is anyone talking about that ?

Ski west sell ski packages to various resorts in the western US and Canada. My impression (as a condo-owner in Utah) is that they’re sort of a “close out” operation that puts together packages using properties that don’t easily rent out through normal channels. It’s not necessarily a bad business, but there’s lots of competition, including from the resorts who will often offer such services directly these days.

From their website: “Mountain Reservations provides the largest selection of privately owned ski vacation rentals in locations like Breckenridge, Vail, Aspen, Sun Valley, Jackson Hole, Park City, Deer Valley ® Resort and other top Ski Resorts. We have tons of comfortable to luxury vacation rentals for you to search; privately owned homes, cabins, Inn’s, hotels, spas and condominiums. For Complete travel packages with access to the Top 20 Ski Resorts as seen in Ski Magazine and unforgettable mountain vacations, call 1-800-754-9378 today! Keep in mind that we can build a custom ski package including everything you will need for a perfect ski vacation getaway, from lodging and lift tickets to airfare, car rentals, skis and snowboards!”

Heh, this site (http://longorshort.blogspot.com/2005/08/im-long-mudpies.html)actually advocates putting stock in Mudpies, which I guess is some sort of endorsement of Overstock since they seem to offer a lot of Mudpies. You have that going for you, Byrne, which is nice.

Byrne is a fantastical storyteller and hugely entertaining, but the most clarity he seems to able to provide with respect to his business is that he has no visibility as to what they will actually do. His core business is obsfucation.

What is the thesis of their imminent profitability? That they have huge operating leverage? It seems if anything that they will encounter problems with scale rather than benefit from it as they soak up all the excess inventory that is out there, or worse, bid up its value, thus increasing their costs. And if they are (if they haven’t already in a sereptitious manner) starting to create their own manufactured “overstock” goods, you can throw everything, including their stock, out the window.

None of it adds up.

From what I understand, SkiWest will continue to be operated by the founders, who get some kind of kickback if they exceed targets. They’ve been around for a few years, one of several reservation services that have popped up to provide packages of various types. They’re based in Park City UT, though I believe the actual call center is in Salt Lake. Tend to focus on mid to lower level properties at the larger resorts. Not necessarily a bad business, but not sure how well it fits in with OSTK’s “closeout” business. This is a much more people intensive operation that offers customized as well as pre-packaged deals.

Got a bunch of hits on Google, and the founder was anticipating $100m revenue next year. Still, it’s low margin and the competition is heating up as the mom-and-pop travel agencies are backing out of the business in favor of larger national and international operations.

-btc

As BTC has pointed out, Patrick speaks much on the long/short position during this CC. Anyone care to comment on his analysis? My take away is that Dr. Byrne can account for all but about 300K of stock that are held in possession himself, institutions that he knows of, and friends/family of his. This doesn’t leave a lot of wiggle room for the 6M+ odd shorts on this stock. Interested in hearing discussion of this situation as it sounds quite volatile.

Patrick has nothing but the shorts to bail him out.

No Project Rocket or Project Ocean or Project Propellor…nothing left at all but Project Short-sellers, and he’s been working on that one for almost two years now.

The only other company I know of that included short interest in their slides was Sharper Image, when their stock was at $40 a year or two ago.

mfairview,

It didn’t take more than a simple Yahoo Finance lookup to see who the major institutions are who own the stock. Mostly they are various mutual fund companies and managers. O’Byrne may claim to be on a “first-name basis” with all of them, but I suspect that’s just misleading use of language. I’d be surprised at any small-company CEO who did not know the fund managers who owned his stock by name. The fact that he knows them — or has them on speed-dial for that matter — says nothing about his ability to get them to do what he wants. Morgan Stanley, Pru, Barclays and the others aren’t going to suddenly call in their shares and forgo the lucrative stock loan business just to get a short pop in their stock. And of course any of them who are market makers in the name would find it impossible to do so anyway.

I suspect that the smarter shorts are well aware of this.

However, as I’ve said here before, I wouldn’t touch this one with somebody else’s ten foot pole. High short interest is quite dangerous for a short unless you have huge staying power (my own discipline prevents this) while the aggressive promotional activities of the CEO and his endless tirade against shorts certainly is a red flag for the business itself. It’s a battlefield that I’m happy to allow others to fight and die on. There are easier trades elsewhere.

-btc

BTC,

I didn’t mean to imply any intimacy between Patrick and the institution that are holding his stocks. I was more focused on the numbers; which seem to match, with arguable statements on the actual shares that friends may possess. However, he picked only the top 8 institution thus leaving, according to yahoo, about 110 institutions left holding “some” shares (yahoo reports that 117 institutions are invested in OSTK) which, by my reckoning, would account for any underflow mistatements he may have made on his friends holdings.

I suppose if it were not for Patrick’s background, his fathers, and Macklin’s, I may be a bit more cautious about the leadership. It seems to me, they are proven entities thus it doesn’t really compute why any corrosive behavior would occur on their part; at least intentionally. I mean, why would multi-millionaires with solid reputations prior to OSTK (2 of which are in their golden years), risk it all (with possible jail time for misleading the shareholders) on this company? Hm… Doesn’t really make sense to me.

Maybe, just maybe, he’s on to something… He certainly has put his money where his mouth in the purchase of millions of shares on the open market. Works for me.

mfairview,

According to Yahoo, in July, 44% of the shares outstanding were held by institutions, which comes to about 8.9m shares.

They report 6.5m short.

They report about 51% of the float as short (which is kind of odd, because they say the float is unavailable).

Those numbers are high, which is one of the reasons I wouldn’t short this stock (I have many, many others). However they’re not so high that I would buy in with the expectation of a stock squeeze.

As to the direct involvement or reputations of anybody involved, you’re going well beyond my knowledge of the company. I have only — largely out of boredom — taken a look at some of the mechanics being alleged, and commented on the IT-related issues on which I can claim a great deal of expertise. On those two — and only those two — issues, I find the company’s statments and in fact its focus, to be inappropriate.

-btc

BTC,

On your comment regarding technology.. I know a bit myself as I work for a very large company offering online services to millions of users (no it’s not OSTK -grin-). On the surface, most everything works. Below the surface… well that’s a different story! I suspect many companies look this way. I suppose Patrick needs to account for every 1M (actually every 250k if I’m not mistaken) because it directly impacts their pps due to their small float. I actually find it comical since our company speaks in terms of Billions every quarter so 10’s of Million isn’t that big of a deal. All relative I suppose.

FYI: some of the members on their BOD.

Dr. Patrick M. Byrne
President and Chairman of the Board of Directors

Patrick Byrne is the President and Chairman of the Board of Directors of Overstock.com®.

Previously, Byrne was chairman, president and CEO of Centricut, LLC and held the same three positions at Fechheimer Brothers, Inc., a Berkshire Hathaway operating company. He is also the general partner of High Plains Investments LLC, an investment company located in Park City, Utah, and considers himself an investor by trade.

Byrne received his bachelor’s degree from Dartmouth College, a master’s degree from Cambridge University as a Marshall Scholar, and a doctorate in philosophy from Stanford University.

—-

John J. Byrne
Vice Chairman

John J. Byrne served as a Director of Overstock from October 1999 to October 2002. Mr. Byrne has served as Chairman of the Board of White Mountains Insurance Group, Ltd., a financial services holding company, since 1985 and was its Chief Executive Officer and President from 1985 until his first retirement in 1997, and then served as Chief Executive Officer again from 2000 to December 2002. Prior to that he served as Chairman and Chief Executive Officer of GEICO from 1976 to 1985. Earlier in his career, Mr. Byrne spent eight years with the Travelers Insurance Companies, most recently as Executive Vice President. Mr. Byrne has also served a director of American Express Company, Martin Marietta Corporation, Lehman Brothers, Inc., MidOcean Group of Companies, Zurich Re, Terra Nova (Bermuda) Holdings, and OneBeacon Insurance Group. Mr. Byrne currently serves as Chairman of Montpelier Re and as a director of various subsidiaries of White Mountains Insurance Group. Mr. Byrne has served as an Overseer of the Amos Tuck School of Business Administration of Dartmouth College and the Rutgers University Foundation and was a member of the Stanford Graduate School of Business Advisory Council and the Standard Research Institute Advisory Council. Mr. Byrne has a Bachelor of Science from Rutgers University, a graduate degree in Mathematics from the University of Michigan and is a Member of the American Academy of Actuaries. John J. Byrne is the father of Patrick M. Byrne, who is a Director and President, and the chief executive officer of, the Company.

—-

Gordon S. Macklin
Director

Gordon S. Macklin has served as a director of Overstock.com® since October 1999. Mr. Macklin served as chairman, president and chief executive officer of White River Corporation, an information services company, from October 1993 to July 1998. Mr. Macklin was chairman of Hambrecht and Quist Group, a venture capital and investment banking company, from 1987 until 1992. From 1970 to 1987, Mr. Macklin served as president of the National Association of Securities Dealers, Inc.

Mr. Macklin serves as a director for Martek Biosciences Corporation; MedImmune, Inc.; White Mountains Insurance Group, Ltd.; and is a director, trustee or managing general partner of 48 of the investment companies in the Franklin Templeton Group of Funds.

Mr. Macklin has a Bachelor of Arts in Economics from Brown University.

What is this–a blog to reprint the Overstock C.V.s?

Informed observation, please–not cut-and-paste jobs from the Overstock web site.

For example, where did Stormy Simon–Byrne’s Gal Friday–really come from?

Anybody know?

Jeff, any comments?

—

Overstock.com Files Lawsuit Against Rocker Partners and Gradient Analytics; Company President to Hold Live Webcast Friday, August 12, at 8:30 a.m. Eastern Time
Thursday August 11, 1:47 pm ET

SALT LAKE CITY, Aug. 11 /PRNewswire-FirstCall/ — Overstock.com® (Nasdaq: OSTK – News) today announced that it has filed an unfair business practices lawsuit against Gradient Analytics, Inc., Rocker Partners LP, Rocker Management LLC, Rocker Offshore Management Company, Inc., David Rocker, Marc Cohodes, James Carr Bettis, Donn Vickrey, and Matthew Kliber in the Superior Court of California in the county of Marin. The complaint, available for download at http://www.shareholder.com/overstock, alleges that the Defendants have conspired to denigrate Overstock.com’s business for personal profit.

Overstock.com President Patrick Byrne will discuss the lawsuit via a webcast and teleconference scheduled for 8:30 a.m. Eastern Time on Friday, August 12. To attend the live webcast and slide presentation, log on to Overstock.com’s investor relations website at http://www.shareholder.com/overstock. To listen via telephone, please dial (800) 811-8830. Participants outside the United States who do not have Internet access should dial +1 (913) 981-4904. The slide presentation will be available for download at the beginning of the call.

Replay

A replay of the webcast will be available on the Internet at http://www.shareholder.com/overstock starting 90 minutes after the live call has ended. A transcript will be posted to the website as soon as it is available. An audio replay of the webcast will be available via telephone starting at 1:30 p.m. Eastern time on August 12, through midnight Eastern Time on Friday, August 19. To listen to the recorded webcast by phone, please dial (888) 203-1112 (passcode: 4199807). Outside the U.S. please dial +1 (719) 457-0820(passcode: 4199807).

[Copyright stuff snipped]

I’m not a lawyer, but the court filing doesn’t put forth a very compelling argument. Poor Mary Helburn, she of NFI and NCANS fame, lost money on 500 shares of stock which she held for all of 7 months. She must have had a whole lot of conviction about the future prospects of the company when she bought at 57 to turn around and sell less than a year later at a loss. Why not buy more stock if the business is actually worth more than what’s reflected today in the market? Nah, suing is the American way I suppose.

And the actual claims in the case are petty at best. From what I can tell, plaintiffs are upset that Gradient was negative on the stock, and blame the 58 EQA’s for the decline in their price from a massively overvalued 77.18 to its current level(actually, on page 7 of the filing they cite both 77.17 and 77.18 as the all time high, nice lawyering). Their main accusation is that Gradient didn’t disclose that it received input from Rocker Partners regarding it’s research reports and thus was misleading the public about it’s “independence”. The filing does not make any representation as to how it knows that Rocker influenced the reports, and basically is full of speculation. I’m not sure anyhow the difference between this and any of the sell side wall street lackeys who put out bullish reports on companies, no doubt having exchanged ideas with money managers on the street. Should we now begin suing any research shop that puts out positive reports if we are short the stock because they are attempting to unfairly manipulate the stock price upwards without disclosing that they have talked to other money managers who are long? I hope the court tosses this out quicker than OSTK’s technology decrapitated.

Focus, focus, focus.

Instead of focusing their energies on becoming profitable, they are going focus on shareholders that don’t believe the stories that they give.

Apparently the company is extremely undervalued? Their track record of delivering on their results of profitability are not good.

But let’s go through some simple arithmetic:

-lets just say they make their estimate of 2B in ’07 and generate their estimate of 3%,
– subtract some taxes that brings us two 2% (yeah they might have credits, but to offset plenty of future technology expenses).
– So on $2B * 2%=$40M
– $40M/20M shares = $2/share
– $2 *20 P/E (fair for a 10-15% grower they have stated they would be)= $40
– $40/ share in ’07

That is assuming they can deliver… given the many stories and excuses the conference calls and filings bring, what are the probabilities?

So what is the fuss about, a rational valuation is $40. Granted if they blow the socks off and make 5% net, since Amazon, Wal-Mart.com and everyone else will no longer be competing they will be worth more. But the downside is significant that they don’t deliver.

Would it not make sense to deliver results first, in other words profits , before trying to complain about your stock being undervalued based upon growing revenues. Yeah sure their net losses since inception (perhaps $200 million) are less then other dotcoms that no longer exist, but that does not mean that they should have a late 1999 valuation. Growing revenues selling things at a loss (books and media) is not rocket science.

The board is asleep at the wheel here, their CEO is bright but can’t focus on execution right now, as he is obsessed. Most of the rest of the team is inexperienced, with questionable, if any credentials. It would be in the best interested of long term share holders to sack the whole bunch and bring in a real team. It would be in the best interest of those with a ursine focus to do nothing with staff.

These lawsuits will perhaps generate publicity and perhaps cause those focused on temporary conditions to make counter bets, but the long term is becoming more clear as this distraction could last months.

Irrespective of valuation as I’m sure we could argue that all day… If there is something amiss that could be deemed detrimental to the company and it’s stock (and thus it’s shareholder value), the CEO should step up IMO.

I see very little distinction between this suit and the ones that Spitzer went after regarding brokerage houses who’s analysts were giving ratings on companies favorable to those traders from the same house. I suppose the CEO could have waited for Spitzer to come along, but why does that matter?

I would also be interested to hear Dr. Viceroy on the subject as I know he frequents this board (if he is able to comment).

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