12 June 2007

More on Overstock.com

In Saturday's entry I discussed certain controversies concerning the internet retailer Overstock, and gave my view that the company's problems aren't the result of a short-seller's conspiracy, but of a flawed business plan.

As some of the evidence of the company's troubles, recall that three members of the board of directors have quit in the last year. The first to go was the CEO's father, John Byrne, last July.

This February, John A. Fisher left the board. He was explicit about why. The company had just filed a lawsuit against several brokerage firms (separate from the lawsuit I discussed yesterday involving short sellers and an independent research firm -- although brought on a related conspiratorial theory). The "prime brokers" supposedly enabled the naked short-selling of their clients. And they have deep pockets. Fisher said that his disagreement with the pursuit of this lawsuit had precipitated his own exit. What could he mean by that, though? The most reasonable interpretation is that he believes the company has deeper problems, and that the pursuit of such crusades distracts attention therefrom. If that's what he thinks, he's probably right.

Last month, Ray Groves left the board too. Again, he said the prime broker lawsuit was his reason. But, if so, why didn't he leave soon after the suit was filed? Why didn't he leave when Fisher left?

Well ... sometimes when the water is getting hot slowly, one isn't sure just when to jump out of the tub. Groves was apparently harder to boil than Fisher.

Here's another bit of evidence of Overstock's troubles to consider:


Obviously,internet traffic, the number of eyeballs the company's website gets, is a crucial metric for an internet retailer. There was a sharp drop off in early December, as you can see from the chart. The company gained some ground back with a late-month spike, perhaps representing last-minute Christmas shoppers. Then it resumed the downward move.

I don't give investment advice on this blog. And you shouldn't look to blogs for investment advice anyway, on general principle! So, speaking only for myself: I won't be investing in Overstock.

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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.