The vicissitudes of investor sentiment are changing for Overstock.com (NASDAQ:OSTK) shares. After reporting a profitable Q2 and easy revenue beat, Overstock appears set to continue the positive momentum as it executes its business plan, which as I described in a Top Idea narrative last week, is driven by its competent management team, the 3P selling model and a small army of software developers. Upon further reflection, I view Overstock as a well-funded incubator via the growing core 3P business that spins off reliable cash flow and allows Overstock reinvest in new Web 2.0 opportunities. Those include: Supplier Oasis, a private-label credit card, an insurance broker, Enterprise 2.0 software and Bitcoin.
Reuters reported that Mr. Byrne expects Bitcoin sales to attribute 4 cents to 2014 EPS. Since launching in January, while currently de minimus to the top line, Overstock has transacted $2 million in Bitcoin and expects to finish the year at $8 million in transaction volume. If we apply a 15x multiple to the 4 cent estimate, the Bitcoin decision is worth 60 cents to Overstock shareholders with little, if any, capital investment. Meanwhile, Overstock continues to 'create soul' and build its loyal customer base by doing innovative things in the marketplace.
While Bitcoin by itself only makes up a small fraction of value to Overstock shareholders, being a leader in accepting Bitcoin as a form of payment provides tangible evidence that Overstock managers are forward-thinking and 'skating to where the puck is going to be,' while affording Overstock some free marketing and brand building at the same time.
I am maintaining my buy recommendation on Overstock shares with a price target in the low $40's.
Disclosure: The author is long OSTK. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.