• Jeff Matthews

Overstocked and Underauctioned, Part Three

Patrick Byrne is nothing if not bold.

The Overstock.com CEO has built a tiny money-losing internet-based surplus reseller into a large internet-based surplus reseller that made money in Q4 of 2004. Wall Street’s hopes for sustained profitability have been damaged in recent weeks, however, by costs associated with the company’s $1 March shipping promotion and a sudden step-up in marketing that caught most of the analysts by surprise.

That it was caught by surprise is not entirely the analyst community’s fault. Byrne ended his Q4 conference call in January—a few weeks before the $1 shipping promotion appeared—by proclaiming the company had “passed through the tipping point.” “People’s expectations for this year are becoming more confident,” Byrne noted approvingly in his concluding remarks, saying “we can crush” those expectations. “We are really on a roll here,” he said.

In fairness, the sudden downshift from profits back to losses appears to be a part of Byrne’s flexibility in managing Overstock.com. He has, in the past, taken what he calls “Patrick Fliers,” in the form of new ventures and experiments with the basic model of selling overstocked, surplus merchandise. A laudable trait, for the history of business in America is that companies failing to innovate end up being overtaken—particularly in the fast-paced world of the internet.

Such “Patrick Fliers” include the “sprinkling” of $2 million in bonuses “around the company,” in the last quarter of 2004; acquiring online distribution rights to a movie that “answered” Fahrenheit 911, on which the company lost $700,000 in Q4; and $2 million to start an Overstock.com auction site which Bryne, on his conference call, compared repeatedly to eBay.

Indeed, Byrne claimed the new auction site was already “getting better results than they do on eBay” in certain, unidentified areas. He based this on “feedback” from “the eBay power selling community.”

Based on the data at hand, however, it appears to me the Overstock.com auction site is a “Patrick Flier” not achieving liftoff.

“Part Two” of this series detailed the paltry bidding in various Overstock auction categories. Let’s now examine the travel business on Overstock.com, which Bryne described as demonstrating such improvement that “Somebody showed up here from Latin America… [saying] it’s just that we want to liquidate all of our airline tickets through your site. I mean a well-known Latin American airline.”

Indeed, he claimed “we actually had to hire people to answer the phone for the hundreds of contacts we are getting from people in the travel industry, offering us unique deals.”

Unfortunately, those “hundreds of contacts” have yielded, at this moment, all of 278 items for auction in the “Travel” section of Overstock.com Auctions. And of those 278 items, 44 are listed under “Airline.” And just 4 of those 44 have more than 1 bid.

Furthermore, I cannot identify the “well-known Latin American airline” that wants to “liquidate all our airline tickets” through this site, unless that airline happens to offer hokey-looking deals using the handles “4salebyowner” and “sinbad42” and “homeauctionbiz” and “1goodfind” and “freeitemsandmore” and “gailsgoodies.”

Of all the “hundreds of contacts” that beseiged the Overstock phone lines offering “unique deals” there are six entities listing 44 airline deals, of which only 4 attracted more than a single bid. That’s it.

But don’t take my word: check it out yourself. And if you happen see that well-known Latin American airline liquidating all its tickets somewhere on the site I haven’t found, let me know. The snow is falling yet again here in New England, and a nice, cheap ticket south of the border might be just the thing.

http://auctions.overstock.com/cgi-bin/auctions.cgi?PAGE=BROWSE&CTG=433&SORT=7

Jeff Matthews I Am Not Making This Up

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The content contained in this blog represents only the opinions of Mr. Matthews. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. The content herein is intended solely for the entertainment of the reader, and the author.

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