Online home goods retailer Overstock (NASDAQ: OSTK) missed analyst expectations in Q1 FY2022 quarter, with revenue down 18.7% year on year to $536 million. Overstock made a GAAP profit of $10.1 million, down on its profit of $16 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) Q1 FY2022 Highlights:
- Revenue: $536 million vs analyst estimates of $573.2 million (6.49% miss)
- EPS (non-GAAP): $0.21 vs analyst expectations of $0.23 (8.69% miss)
- Free cash flow of $29.9 million, up from negative free cash flow of $5.99 million in previous quarter
- Gross Margin (GAAP): 23.3%, in line with same quarter last year
- Annual Active Customers: 7.4 million, down 2.5 million year on year
“We delivered our eighth consecutive quarter of profitability in line with our stated adjusted EBITDA margin targets, even in a difficult macro environment. While the 19% revenue decline was more than we expected, I am pleased that, based on third party data, we held our market share consistent with Q4 levels.” 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 24.1% annually. The initial impact of the pandemic was positive for Overstock's revenue, pulling forward sales, but quarterly revenue subsequently normalized, year over year.
This quarter, Overstock reported a rather lacklustre 18.7% year on year revenue decline, missing analyst expectations.
Ahead of the earnings results the analysts covering the company were estimating sales to grow 11.8% over the next twelve months.
There are others doing even better than Overstock. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. 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.
Over the last two years the number of Overstock's active buyers, a key usage metric for the company, grew 30.4% annually to 7.4 million users. This is among the fastest growth of any consumer internet company, indicating that users are excited about the offering.
Unfortunately, in Q1 the number of active buyers decreased by 2.5 million, a 25.2% drop year on year.
Key Takeaways from Overstock's Q1 Results
With a market capitalization of $1.35 billion Overstock is among smaller companies, but its more than $493.2 million in cash and positive free cash flow over the last twelve months give us confidence that Overstock has the resources it needs to pursue a high growth business strategy.
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 growth was quite weak. Overall, this quarter's results could have been better. The company is down 4.42% on the results and currently trades at $30 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.