Testing

A full month has elapsed since Overstock.com CEO Patrick Byrne issued his “MOMENT TO STRIKE” bulletin urging his auction foot-soldiers to “HELP CONTACT EBAY BUYERS” to take advantage of eBay’s fee increase blunder.

Quothe the CEO: “As a result of these dynamics [eBay’s fee increase combined with Overstock’s fee decrease], our listings have soared from 50k to 90k in two days. The quality of listings is excellent. “

Well, we now have more than just two days’ worth of data to determine the potential boost to Overstock’s auction site—we have thirty. And the results are not promising for Overstock.com.

Overall listings on the Overstock auction site, by my count, are now in the 150,000 range, with a handful of categories (jewelry most notably) showing continued growth and a majority of others (coins, consumer electronics, crafts among them) not.

Clearly, the early momentum—40,000 of new listings the first two days after eBay’s price increase—did not continue. (I do not have daily data stretching back to Bryne’s “MOMENT TO STRIKE” proclamation, and welcome it here from anyone who does). Otherwise, Overstock’s auction listings would be far higher than 150,000.

In addition, the individual categories themselves do have not much action, when measured by the percentage of listings with more than one bid.

In coins, for example, only 268 out of 2,666 recent listings—just 10%—had more than one bid. Pottery and glass, only 10 out of 2,341…not even 1%. Antiques were slightly more successful, with 56 two-bids or more listings, out of 1,161—just under 5%. That lack of participation is not a good thing, and goes a long way toward explaining why Overstock’s auctions appear to have little traction.

Comparable data for eBay is impossible to calculate unless you have no life, because the eBay listings are so vast (205,000 in antiques alone, which is greater than all of Overstock’s listings). I would suggest to the Conspiracy Theorists who devote so much of their lives to detailing here and elsewhere the rambling, incoherent, paranoid fantasies they have constructed regarding naked short-selling to explain movements in Overstock.com’s stock price, that they divert just a few dozen hours of that time to looking at actual data such as the Overstock auction listings. Perhaps they can show where my calculations have gone wrong.

In any case, we will explore further Overstock.com auction data in Part III. For now, it would appear Patrick Byrne’s “MOMENT TO STRIKE” has come, and gone, without sparking much of a fight.

Jeff Matthews
I’m Not Making This Up

Well, the “Berkshire Hathaway of the New Economy,” as world-famous Legg Mason money manager Bill Miller has called Barry Diller’s IAC/Interactive, is making a very non-Berkshirian acquisition.

IAC will shell out nearly $2 billion of stock for Ask Jeeves, the Bubble-Era search engine briefly revived from the near-dead thanks to its relationship with Google, which provides 70% of Ask Jeeves’ advertising revenue by placing ads on Jeeves’ sites.

The spin thus far seems to be that IAC’s travel sites will benefit from their natural synergy with search engines, of which Ask Jeeves is considered something of a player.

In reality, Diller is buying yet another weak, third-string broken-down business. Hardly the “Berkshire Hathaway” model so loudly touted by Miller and other Barry Diller acolytes.

It will be interesting to see how Miller–no dummy–reacts to this one.

Jeff Matthews
I’m Not Making This Up

On February 20th, Overstock.com CEO Patrick Byrne posted a bold message on the Overstock auction message board.

“THE MOMENT TO STRIKE,” Bryne’s message began, noting the February 18 eBay fee increases and the opportunities these offered to grow Overstock.com listings. Bryne noted that Overstock’s auction listings had soared from 50,000 to 90,000 in just the two days since eBay shot itself in the foot by annoying its members and doing exactly what low-cost retail operators never do: raise prices.

Since a full month has now elapsed since both the eBay move and Byrne’s clarion call to his auction members, we now have some data to assess the impact of Byrne’s call to action, and in ensuing posts will take a closer look at the results.

Suffice it to say, it does not appear at this point that eBay has anything to worry about from Overstock.com Auctions.

Jeff Matthews
I’m Not Making This Up

Napster’s launch of a new music-download service, called “Napster To Go,” is being touted today in the Wall Street Journal as “a completely different model for buying and playing music.”

Napster’s “new model” is indeed completely different from Apple’s 99c download model: instead of charging per song, the Napster user “rents” all the songs they want, as long as they pay a $14.95 monthly fee. When they stop paying the rent, they stop getting access to the songs.

States the Journal, this is “a model that Apple can’t match today.”

Unforunately for Napster, Apple has no need to “match” the “Napter To Go” model, because Napster To Go will not ever, in my opinion, go anywhere.

But don’t take my word.

Go to a college campus. Ask a random student how many songs they have on their iPod. The student will probably say something between 200 and 2,000. I am not making this up. Students take their music seriously.

Then ask how many of those songs have been purchased from iTunes. They will smile, wrinkle their brow, look up at the ceiling and ponder this, and then probably say something like maybe 1%.

Yes, 1%. Not half, not a quarter, not even 10%. Kids do not download music from iTunes for 99c a pop. They burn compact discs already in their collection, they burn friends’ cds, they swap files.

So this notion that an online rental service for music is far more cost-effective for the average iPod user than iTunes itself, is hokum.

Kids wanted their MTV, and they want their iPods, and they are not going to pay $14.95 a month or $14.95 a year, for that matter, to rent something they can download for free.

Jeff Matthews
I Am Not Making This Up.

In memory of Henry M. Matthews, February 26, 1926-March 17, 2005.

Dan Carp, who happens to be CEO of Kodak, the company that has been left high and dry by the digital tsunami, gave a keynote speech at a wireless trade show this week in which he warned that camera phones could “fade into niche obscurity,” according to the Wall Street Journal, “if the industry doesn’t improve the quality of the phones and the experience of using them.”

According to Carp, who has successfully redeployed the fast-fading cash from Kodak’s film business into all manner of lousy digital and printed-related businesses, the consumer wants better image quality, battery life and printing capabilities. Many consumers find camera phones “less than satisfying.”

The man has no clue.

Far from being a teenage girl-specific fad–and I have two teenage daughters–camera phones are useful in a whole bunch of ways I never imagined, from Sting fans taking pictures and short videos of the rock star and sending them to friends while the concert was still going, to heavy travelers like me swapping pictures with their kids to let them know, say, your plane landed safely, or you miss them.

Being in Florida for a family illness, I got a late-night picture on my cell phone last night showing the cats resting comfortably on the bed. All was well at home.

Mr. Carp, in remarks intended, I suppose, to show how aggressively Kodak is staking out new frontiers in the digital realm, only proves how ignorant he is of what consumers actually do with one of the most successful consumer products of modern times.

Don’t bet on him–or Kodak–to lead the revolution.

Jeff Matthews
I’m Not Making This Up

If you are, or plan to be, a shareholder of Overstock.com, make sure you read the Overstock.com message board at the following URL: http://forums.auctions.overstock.com/

You will find a message board titled “Deep Thoughts” by Overstock CEO Patrick Byrne, who posts his “Deep Thoughts” under the name Hannibal. You should read his posts.

You will find thoughts both deep and shallow, facts in the form of definitions of certain issues dear to his heart (including short-selling)…and you will also find weird tangential points, borderline-paranoid musings, and outright inanities.

For example, this from CEO Patrick Byrne:

The key is this: if given the right to create an unlimited number of new shares essentially out of thin air, not limited by the number of shares “in the borrow” as legal shorting requires, these hedge funds can always drive the price down and always cover for a profit.

To which, I would say, “Well, yeah, sure, Patrick…but nobody is given that right to create unlimited shares out of thin air, least of all hedge funds. And even if they could, no hedge fund could always drive the price down and always cover for a profit–unless the fundamentals of the company justify that price action. Otherwise, Patrick, willing buyers–who vastly outnumber the ranks of shortsellers, as your own conference calls attest–would step in and buy.”

Now, before readers accuse me of exaggeration for effect, or simply of making it up–not allowed on this site–let me highlight a couple more facets of the Byrne “precis” on naked shorting (which clearly does exist, although not on the scale imagined by Bryne and his certifiables, nor is it practised by any legitimate, professional hedge fund I know–and I know a lot of them).

Byrne lays out in great detail the same bizarre scenario explicated at length on the Overstock conference call by “X-Files” O’Brien, full of paranoid delusions of market-making in “German exchanges” and the supposed “nudge and a wink” by which the DTCC supposedly gives free reign to the hedge fund Visigoths.

But that’s not even the most bizarre thing about these posts.

The most bizarre thing is that the Byrne postings on “Naked Shorting” have each been edited by Byrne himself as many as 8 times.

This is a CEO who really likes to write on message boards.

Yes, some unprofessional, bad guys short stocks naked. No, Overstock.com’s problems are not naked shortsellers. They are, by and large, professionals who think, among other things, a man who spends part of his day alerting his auction site readers to an upcoming appearance on Charlie Rose (also on the message board), and who has taken up the banner of a bizarre, paranoid and highly delusional individual who goes by the alias “Bob O’Brien” is probably not the guy you would want running a fast-growing public company.

Especially when earnings estimates are coming down.

Jeff Matthews
I’m Not Making This Up

So the board of directors of AIG, according to the Wall Street Journal, is close to jettisoning long-time CEO, Strong Man “Hank” Greenberg, as a tide of regulatory problems at AIG rises ever-closer to the executive suite that Greenberg ruled with an iron fist.

I know ex-AIG veterans, and they swear by Greenberg and his get-it-done, make-the-numbers, show-the-growth style. He came into a small, insular company and made it a Wall Street fave and an insurance industry steamroller. But what problems has he steamrolled along the way?

Time will tell, and I have no particular insights into AIG itself–perhaps a reader or two may enlighten this page. But I can not name a single company of the get-it-done, make-the-numbers, show-the-growth type that has not uncovered vast problems–from the billions of dollars in overstated earnings at Tyco to the vast channel-stuffing uncovered at Coke–whether the Strong Man has retired in glory or resigned in disgrace.

Think about them: Tyco afterKozlowski; Coke after Goizueta; GE after Welch; Enron after Lay; Worldcom after Ebbers; Pfizer after McKinnell (McKinnell is still there, but the problems are already surfacing)…

It will be very interesting to see what the regulators uncover now that Greenberg is out at AIG. My guess–an educated guess–is that it will get much worse before it gets better.

Jeff Matthews
I’m Not Making This Up

P.S. My first draft of this piece omitted two of the most obvious of all Strong Men: Sandy Weill, whose heir Chuck Prince is dealing with festering problems at Citibanks all over the world; and Michael Eisner, Disney control-freak extraordinaire finally yielding to–or perhaps more like installing–former weatherman Robert Iger in his place.

Almost nobody thinks we really know who killed JFK.

Indeed, the JFK Conspiracy debate covers everything—how many shots were fired, by whom, from what part of Dealey Plaza, with what type of gun…and that’s just the few seconds of the entire tragedy. I’m not even going near the grassy knoll or the manhole cover or anything else the Conspiracy whacks get into.

So let’s just look at the most basic issue of all: how many shots were fired? It’s a very specific question, and it should be among the least debatable, considering the number of witnesses and the brief time span of shots. The Warren Commission said three. Oliver Stone says six. Somebody’s got to be right about this.

Now, the purpose of this blog is not to debunk JFK Conspiracy Theorists. We’re trying to bring accountability and insight to Wall Street.

But it’s the weekend, and weekends mean a feature unrelated to stocks.

Steady readers will know how I feel about Conspiracy Theorists in the stock market (see “When CEOs Obsess” and “These Are The Patsies”). They’re certifiable.

And if the JFK assassination-obsessives share the shallow, paranoid thought processes that Wall Street Naked Short-Selling Conspiracy Theorists bring to the stock market—well, maybe it’s better to let them obsess about grassy knolls and manhole covers. Better than having them loose on the sidewalks of Dealey Plaza, trying to make eye-contact with tourists.

Still, I could not resist breaking the news here that the question of how many shots were fired at JFK has been answered, soundly and soberly by multiple eye- witnesses, who were riding in the cars right behind the President: there were three shots fired at JFK. And only three.

The proof is in a remarkable book nobody seems to be reading.

It’s called “President Kennedy Has Been Shot,” by a news media organization called “The Newseum.” It describes the assassination of JFK “through the eyes of more than sixty print and broadcast journalists” covering the motorcade and the other campaign events that day—in Dallas, Washington, and on Air Force One. The book combines the reporters’ and photographers’ statements with transcripts of the Dallas Police Department radio transmissions and communications between the White House and a plane carrying Cabinet officials to Japan, to create a compelling minute-by-minute account.

It is a very easy read, but packed with such detail that it is not a quick read. For purposes of this essay, I pick up where the first shots are heard by reporters riding in the Presidential motorcade.

Tom Dillard, Dallas Morning News photographer: “…when the first shot was fired, I said ‘They’ve thrown a torpedo.’ At the second shot, ‘No, it’s heavy rifle fire,’ and at the third shot I said, ‘They’ve killed him.”

Bob Jackson, another photographer riding with Dillard, had just unloaded his camera and passed the film from the first part of the ride to a reporter on the ground. “And that’s when we heard the first shot, and then two more shots closer together.” He says he looked at Dillard: “We knew it was a gunshot, no doubt about it. On the fifth floor I saw two men leaning out and looking up. And my eyes went up to the next window and I could see the rifle on the ledge and I could see it being drawn in.” Jackson had not yet reloaded his camera with film.

Merriman Smith, the legendary UPI White House correspondent, was riding in the front seat of the White House press-pool car, four cars behind the President’s limousine. Smith said: “Suddenly we heard three loud, almost painfully loud cracks. The first sounded as if it might have been a large firecracker. But the second and third blasts were unmistakable. Gunfire.”

Robert MacNeil, NBC News correspondent, recalls: “I said, ‘Was that a shot?’… Then there were two more explosions, very distinct to me.”

Bob Clark of ABC News: “When [Merriman Smith] said those were gunshots, I think we all in the car just accepted they were gunshots. They were loud and clear and more significant—for the historical record—they were equally loud and equally clear and were clearly fired from almost over our head…”

Anybody else see the pattern?

Not one person—not one—in the press covering the motorcade that day in Dealey Plaza claimed anything other than three shots. Distinct, clear, loud, and overhead. By a gun being withdrawn from the window of the Texas Book Depository.

The oddest aspect of the book, in my opinion, is that it makes no point about this fact, or any other facts debunking the Conspiracy myth. It merely continues via eyewitness snippets of the rush to Parkland Hospital, Officer Tippit’s shooting, Oswald’s arrest, LBJ’s swearing-in, flying the body to Washington, Ruby killing Oswald, and finally the funeral in Washington.

It never stops to consider the significance of the simple words of those men about what they heard and saw: one rifle, three shots, history changed.

Jeff Matthews
I’m Not Making This Up

“The steal of a lifetime,” crowed Patrick Byrne on the Overstock.com earnings call. “We did a $7 million deal on diamonds,” Byrne told his admirers, for a ‘Build Your Own Ring’ feature the web site had opened–one of the “skunk works projects” Byrne likes to tease his fans with on the calls. “We intend to dominate in the $1,000 to $5,000 range” of diamond engagement rings, he bragged.

Big talk, even for the voluble Doctor Byrne.

According to Byrne—and this is important—Overstock will sell engagement rings at price-points above the low-end, which is “controlled by Zales and Wal-Mart,” and below the high-end where, among others, fast-growing online jewelry retailer Blue Nile lives.

Byrne defined the low-end as “up to $1,000”; the high-end at $5,000 and up. Blue Nile, for example, operates with an “average order size [of] about $5,500,” according to Bryne. This price gap between the Wal-Marts of the world at the sub-$1,000 low end, and the Blue Niles of the world at the $5,500 high-end, offer the potential for “fantastic pricing” for Overstock, Byrne exulted.

Unfortunately for Overstock.com, for Patrick Byrne and for Overstock.com shareholders and the analysts who recommend the stock, there is no such gap that I could find in the actual web sites of the companies he mentions; only, apparently, in the fertile imagination of Doctor Byrne.

Go to “Walmart.com”. Type in “Diamonds.” Sort them by “Top Seller.” You will find the Top 5 sellers to be priced, in order: $697, $5,488, $1,399, $3,288, $898. I wasn’t a math major, but that’s an average price of $2,354 per ring. Smack in the middle of the price range Overstock.com fancies itself “dominating.”

Now, Wal-Mart certainly sells a great many more pieces below $1,000, and its average ticket is undoubtedly below the $2,354 average of its five best-selling rings. But Wal-Mart’s best sellers are right there in Bryne’s price “gap,” and I find it hard to see how Overstock.com will source and sell better than Wal-Mart.

What about the high end of the diamond ring market—the $5,500 “average order size” that Blue Nile operates on, according to Byrne? Another sketchy data point from the erudite Doctor Byrne.

“A key metric is our average order size,” Blue Nile’s CFO states on that company’s recent earnings call, “which was $1,283 in the fourth quarter.” While engagement rings did indeed average $5,500 in 2004, as Doctor Byrne noted, Blue Nile sells far more units of lower-priced merchandise. Tour the Blue Nile site and you will find pre-set engagement rings starting at $325.

Tour the Overstock.com site, on the other hand, and out of the Top 20 sellers, only 5 of the rings sell for over $1,000. The other 15 range from $199 to $999. Hardly the $1,000-$5,000 pricing strata staked out by Byrne.

So much for the hype behind the Byrne spin. But here’s where the whole “steal of a lifetime” gets interesting.

Blue Nile ended its year with $9.9 million worth of inventory. Inventory for Blue Nile consisted of “settings for our customized diamond products, customized jewelry…and finished jewelry such as pearls and sterling silver products.”

Notably absent in Blue Nile’s inventory is the mention of a large slug of diamonds. This is because Blue Nile operates with hardly any actual loose diamonds. As of last October Blue Nile carried a mere $120,000 of loose diamonds on its balance sheet.

Patrick Byrne, on the other hand, positively gloats about “a $7 million deal on diamonds that was the steal of a lifetime.”

Why a fledgling Blue Nile-type web site knockoff requires $7 million worth of diamonds, when the actual Blue Nile operates with 98% less is a question worth asking.

Furthermore, even assuming Overstock.com has—thanks to its “skunk works”—figured out how to convert $7 million of diamonds into a profitable business, it would be worth understanding how exactly one goes about getting a “steal” on $7 million worth of diamonds.

The wholesale diamond market is not exactly inefficient in the manner of, say, Chinese pottery. Diamond sellers know what their inventory cost them, and what it is worth, and the wholesale buyers know it, too. Getting a “steal of a lifetime” on $7 million worth of diamonds is as hard to imagine as an oil trader pulling one over on the boys at Chevron.

I have no answers. But these matters of the price-point “gap” Overstock aims to “dominate” and the $120,000 of loose diamonds on Blue Nile’s balance sheet compared to Overstock’s $7 million “steal of a lifetime” are all subjects that should be explored more deeply.

Any informed input here is welcome.

Jeff Matthews
I’m Not Making This Up

The unintentionally funniest–and most poignant–line from Ask Jeeves CFO Steve Sordello’s presentation yesterday at a Lehman conference came during his analysis of Ask Jeeves’ brand awareness.

“Ask Jeeves has 80-85% aided brand awareness,” Sordello told the audience. “That means, you go up to somebody and ask Do you know what Ask Jeeves is, they’ll say Yeah, it’s a search engine.”

Sounds good, right?

Unfortunately, Sordello continued, unaided awareness is only 20-25%. Ask people to name search engines, and Jeeves only comes up one out of four or five times. “People know about us,” Sordello explains, “they just don’t recall us.”

Yes. And people know who Weird Al Yankovic is, they just don’t recall him.

Like all public companies with a hot past and a deteriorating future, Jeeves is trying its best to keep up with the Googles, buying up a slew of companies and turning on the spending faucet. “We think marketing here is gonna tremendously help close that gap” between those who know about Jeeves but don’t bother to use it, Sordello declares rather hopefully.

It’s a happy thought. But the reality is, Ask Jeeves’ 15 minutes of fame–like Weird Al Yankovic’s–looks just about up.

Jeff Matthews
I’m Not Making This Up