Overstock.Com - You Got Byrned!

Summary

• Yesterday after the close, it was revealed that former CEO Patrick Byrne unloaded his entire stake in OSTK at prices from $16-$21.
• The move was a stab in the back for shareholders, who believed in his vision for the Company and long-term support despite his recent resignation.
• The sale is suspicious since OSTK said yesterday that its T0 token dividend to shareholders would be delayed pending a formal registration of the tokens.
• With no Retail sale on the horizon though leaked as a rumor by Byrne this summer, T0 burning cash, the SEC pushing back on the T0 dividend, and Byrne's sale ironically boosting the float killing the short squeeze story, the story is completely broken.
• OSTK has turned from a "Bad Coupon Trip" to a stock that is about to completely burn investors.  Though OSTK may run out of cash this winter, we peg fair value at 0.1x sales ($150MM) + $1/share stub for crypto = $5/share.  Reiterate SELL.

At this point, OSTK is totally broken but it's may quickly get worse.  Patrick Byrne's abrupt recent resignation as CEO for alleged political "exposure reasons" now appears to be totally bogus or even delusional.  In an interview posted last night, Byrne blames the SEC for delaying the T0 dividend (the Company's blockchain trading platform) to common shareholders, requiring it to be fully registered versus a previously planned six-month hold which would fight short sellers who would not be able to deliver it against their positions.  By selling his entire position in OSTK, Byrne now does not seem to believe the dividend will occur, or if it does happen, that it will create no value for OSTK positions.  Ironically, by dumping millions of shares in a few days, Byrne has now dramatically increased the OSTK float undercutting one of the core arguments for traders of the stock - a massive short squeeze.  It also is a potential insider trading violation by Byrne and the entire OSTK management team and Board of Directors, as he is still considered an affiliate of the Company for T+90 days from his resignation.

This story is becoming weirder by the hour which we didn't think was possible after Byrne's alleged Russian spy affair and FBI intrigue (see the headlines).  A news story broke last night that a former advisor to T0, Steven Nerayoff, was arrested for embezzlement charges for work performed for crypto investments and counterparties.  This arrest calls into question the entire portfolio of blockchain investments made by OSTK over the past few years, in our opinion.

DOJ Brings Extortion Charges Against Early Advisor to Ethereum, tZero - CoinDesk

We are starting to wonder if OSTK all along has been an "air sandwich", propped up by massive online sales using a drop ship model for home products with no chance at long-term economic profits and a multi-year investment "program" and stock promotion aimed at catching lighting in a bottle as a cryptocurrency and blockchain technology play.

With $100-150MM+ of cash at the end of June 2019, since it is burning cash, and because OSTK is heading into the uptick fourth quarter online season which will require the company to have access to much more working capital for its $1.5BN run rate online business, there is a substantial risk that OSTK will run out of cash, in our opinion.  This cash need will be magnified by any Chinese tariffs and their impact on margins for the Company's electronic heavy fourth quarter sales mix.  The real questions now are will regulators give this Company enough runway to blow up, or will they quickly pull the rug from this potential house of cards and invade OSTK's Utah HQ to seize documents.

OSTK has turned from a "Bad Coupon Trip" to a stock that is about to completely burn investors.  Though OSTK may run out of cash this winter, we peg fair value at 0.1x sales ($150MM) + $1/share stub for crypto = $5/share.  Reiterate SELL.