Overstock (NASDAQ:OSTK) Q1: Beats On Revenue But Usage Drops

Radek Strnad /
2023/04/27 6:06 am EDT

Online home goods retailer Overstock (NASDAQ: OSTK) beat analyst expectations in Q1 FY2023 quarter, with revenue down 28.9% year on year to $381.1 million. Overstock made a GAAP loss of $10.3 million, down on its profit of $10.1 million, in the same quarter last year.

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Overstock (OSTK) Q1 FY2023 Highlights:

  • Revenue: $381.1 million vs analyst estimates of $361 million (5.58% beat)
  • EPS (non-GAAP): -$0.10 vs analyst estimates of -$0.14
  • Free cash flow of $14.8 million, up from negative free cash flow of $35.3 million in previous quarter
  • Gross Margin (GAAP): 23.5%, in line with same quarter last year
  • Annual Active Customers: 4.8 million, down 2.6 million year on year

“The team delivered positive adjusted EBITDA for the twelfth consecutive quarter,” 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 solid, averaging 19.1% annually. This quarter, Overstock beat analyst estimates but reported a rather lacklustre 28.9% year on year revenue decline.

Overstock Total Revenue

Before the earnings results were announced, Wall St analysts covering the company were estimating revenues to decline -7.77% over the next twelve months.

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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 16.7% annually to 4.8 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 2.6 million, a 35.1% drop year on year.

Key Takeaways from Overstock's Q1 Results

With a market capitalization of $816.6 million Overstock is among smaller companies, but its more than $374.7 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 liked to see that Overstock beat analysts’ revenue expectations pretty strongly this quarter, and EBITDA was also ahead. That feature of these results really stood out as a positive. On the other hand, there was a decline in number of users and the revenue growth was quite weak. Overall, it seems to us that this was a complicated quarter for Overstock. The company is up 2.93% on the results and currently trades at $18.6 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.

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