Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

CryptocurrencyThe Death Spiral

Is Bitcoin Driving’s Success?

The cryptocurrency price boom might be driving the rally at one of the few retailers that will accept bitcoin payments: (NASDAQ: OSTK).

Over the summer Overstock’s stock price has shot up to a new high; $19.50 on August 11, 2017. What’s interesting from a cryptocurrency Geek’s standpoint is that Overstock’s rise has mirrored that of bitcoin.

Back on July 16, 2017 bitcoin was trading at $1,992.32 a unit, according to our friends over at Coinbase. On July 17, 2017, a share of Overstock was selling for $16.10. By August 16, 2017; bitcoin had reached a new high of $3,242.02 at the same time as Overstock’s new high.

Is Overstock in the Death Spiral?

That might not be a coincidence because the bitcoin boom might be responsible for Overstock’s sudden surge.

Some outside factor must be at plan here because Overstock’s financial numbers are terrible. Some of the lowlights of its’ Second Quarter 2017 earnings report include:

  • A negative net income of -$13.40 million on June 30, 2017. This was the worst such number yet, on March 31, 2017 Overstock’s loss was -$6.81 million. That means losses nearly doubled in just three months, and they’re accelerating, in June 2016 the Big O reported a positive net income of $10.56 million. This means Overstock’s losses have grown by around $33 million over the past year.

  • An earnings per share (EPS) number of -.5188 million on June 30, 2017.


  • A “profit margin” of -1.74%.


  • A “free cash flow” of -$28.45 million.


  • A negative return on equity of -8.05%


  • Assets of $412.88 million on June 30, 2017. Even this number is falling; Overstock reported $441.30 million in assets on March 31, 2017.


  • $103.95 million in cash and short-term investments on June 30, 2017.


  • $12.09 million in cash from financing on June 30, 2017. This is a sure sign that Overstock is borrowing money to finance its’ operations. The reason it is doing that is because the company cannot make money from its’ operations.

  • $20.10 million in cash from operations on June 30, 2017. This was less than half the $50.97 million reported in March 2017, and less than 25% the $75.40 million reported on June 30, 2017.


  • No visible dividend.


  • A market capitalization of $467.511 million on August 16, 2017.


  • An enterprise prize value of $411.73 million on August 16, 2017.


  • Revenues of $1.832 billion on June 30, 2017. This was a slight improvement over the $1.819 billion reported on March 31, 2017.


All this looks like a company in the death spiral. The death spiral is what occurs when a retailer cannot generate cash to cover the cost of its operations. That seems to be happening at Overstock right now.

Did Bitcoin Just pass an Important Milestone and Nobody Noticed?

These numbers raise an important question: what is driving Overstock’s sudden rally? My guess is that it is bitcoin, and it might indicate that cryptocurrencies have passed an important milestone.

The milestone is this: more conservative investors; including value investors, have taken notice of altcoins. These people would not invest in cryptocurrencies directly but they are looking for stocks that might from them. Overstock is one of those because it takes direct bitcoin payments; unlike most online retailers including Amazon.

Many of these people are probably buying Overstock on a short term basis figuring it’ll shoot up in price and they can make a fast profit from a quick sale. Others may assume that some other retailer; possibly eBay (NASDAQ: EBAY) or Alibaba Holdings (NYSE: BABA), is about to acquire the Big O.

That makes Overstock a poor investment right now because the only reasons to buy it are purely speculative. My prediction is that this bubble will soon pass and Overstock will fall to new lows.

Why Overstock’s Woes are a Bad Sign for Brick and Mortar Discounters

Overstock’s problems are a very bad omen for both online and brick and mortar discounters. The whole business model at Overstock is to offer really low prices on a wide selection of merchandise; including many items not normally found in the bargain basement.

Yet it is no longer able to make money that way because two far larger discounters are able to match its’ prices. Those giants are Walmart (NYSE: WMT) and Amazon (NASDAQ: AMZN), which are in the middle of an all-out online discount war at the moment.

This hurts Overstock because those companies are far more visible and reputable. Worse both Walmart and Amazon are aggressively trying to enlist the best of the online merchants that companies like Overstock depend upon for inventory. The giants can offer those sellers access to a mass market with tens of millions of customers, national advertising, and mainstream respectability.

Changing Consumer Behavior Threatens Overstock and Many Other Discounters

It also gives buyers far less reason to shop at lesser sites like Overstock. I should know because I’m one of those buyers. I recently needed to find a USB cable for my new phone, when I searched for it one of the best prices was at with free shipping so I bought there. Just last year I would have probably gone to eBay or some hole in the wall supplier for the same product.

A related problem is that it is now possible to buy Walmart and Amazon gift certificates with bitcoin at websites like Gyft and eGifter. This means that bitcoin users can shop at Amazon and Walmart right now, eliminating one of Overstock’s main attractions.

That situation is about to be made worse as MasterCard and Visa debit cards that convert cryptocurrencies to dollars hit the market. A Singapore unicorn called TenX claims it has such a card ready for roll out. Bitpay has been marketing a bitcoin Visa for some time. These cards will enable bitcoin users to shop at Amazon and Walmart without buying a gift card which is a major threat to Overstock.

This change in consumer behavior is bad news for Overstock and other bottom online peddlers such as eBay, Etsy (NASDAQ: ETSY) and Newegg. It also threatens a wide variety of brick and mortar discounters; including Big Lots (NYSE: BIG), the TJX Companies (TJX), Target (NYSE: TGT) and possibly dollar-store operators like Dollar General (NYSE: DG) and Dollar Tree (NASDAQ: DLTR), to name just a few.

How Amazon and Walmart threaten all Discounters

The threat to discounters here is threefold:

  1. First Walmart and Amazon can both afford to sell items at incredibly low prices sometimes at a loss even with shipping costs. The hope is that people who buy at a loss will buy something else – in other words a loss leader. This forces other retailers; that lack the big boys’ resources, to sell at a loss driving them into the death spiral.

  1. Amazon and Walmart are in a great position to suck up a large percentage of the low-cost merchandise out there. This includes both the cheap goods manufactured in China, and a lot of the consignment merchandise that companies like Overstock, TJX and Big Lots depend upon. Many suppliers that would normally sell consignment might list the goods on the Amazon or Walmart marketplace instead.


  1. A related problem is that both Amazon and Walmart have the leverage to force many suppliers to sell only to them. News reports indicate that Walmart has already tried this by trying to force merchants off Amazon. Amazon is likely to retaliate with a similar tactic.


If this situation plays out as I think it will we will see the dismal financial numbers at Overstock repeated at many other discounters. Many of them will collapse completely or get acquired in that situation.

Investors should stay away far from Overstock but watch it closely. The fate of this humble online discounter might just show us the future of discounting and reveal the next stage of the Great Retail Apocalypse.