Overstock (NASDAQ:OSTK) Misses Q4 Sales Targets, Stock Drops

Kayode Omotosho /
2023/02/22 6:04 am EST

Online home goods retailer Overstock (NASDAQ: OSTK) fell short of analyst expectations in Q4 FY2022 quarter, with revenue down 33.9% year on year to $404.9 million. Overstock made a GAAP loss of $15.5 million, down on its profit of $32.9 million, in the same quarter last year.

Is now the time to buy Overstock? Access our full analysis of the earnings results here, it's free.

Overstock (OSTK) Q4 FY2022 Highlights:

  • Revenue: $404.9 million vs analyst estimates of $448.7 million (9.75% miss)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.02 (-$0.02 miss)
  • Free cash flow was negative $35.3 million, compared to negative free cash flow of $7.54 million in previous quarter
  • Gross Margin (GAAP): 22.1%, down from 22.7% same quarter last year
  • Annual Active Customers: 5.2 million, down 2.9 million year on year

“The team maintained strong operational discipline and delivered another quarter and year of positive adjusted EBITDA while navigating shifting consumer demand and a highly promotional competitive environment,” said Overstock CEO Jonathan Johnson.

Originally launched as a website focusing on selling clearance sale electronics and home goods merchandise, Overstock (NASDAQ: OSTK) is a leading online retailer of home goods, primarily furniture.

Consumers ever rising demand for convenience, selection, and speed are secular engines underpinning ecommerce adoption. For years prior to Covid, ecommerce penetration as a percentage of overall retail would grow 1-2% annually, but in 2020 adoption accelerated by 5%, reaching 25%, as increased emphasis on convenience drove consumers to structurally buy more online. The surge in buying caused many online retailers to rapidly grow their logistics infrastructures, preparing them for further growth in the years ahead as consumer shopping habits continue to shift online.

Sales Growth

Overstock's revenue growth over the last three years has been strong, averaging 20.9% annually. The pandemic had a positiv impact on Overstock's revenue, unfortunately sales levels have been reverting back since.

Overstock Total Revenue

This quarter, Overstock reported a rather lacklustre 33.9% year on year revenue decline, missing analyst expectations.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Usage Growth

As an online retailer, Overstock generates revenue growth by growing both the number of buyers, and the average order size.

Overstock has been struggling over the last two years as the number of active buyers, a key usage metric for the company, declined 0.97% annually to 5.2 million. This is one of the lowest levels of growth in the consumer internet sector.

Overstock Annual Active Customers

In the number of active buyers decreased by 2.9 million, a 35.8% drop year on year.

Key Takeaways from Overstock's Q4 Results

With a market capitalization of $963.3 million Overstock is among smaller companies, but its more than $371.3 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

We struggled to find many strong positives in these results. On the other hand, there was a decline in number of users and the revenue is continuing to decline. Overall, it seems to us that this was a complicated quarter for Overstock. The company is down 5.04% on the results and currently trades at $19.99 per share.

Overstock may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.