Markets shares fall 5% after earnings

Key Points
  • Overstock reported a 13 percent drop in fourth quarter revenue to $456.3 million, and a 3 percent decrease in sales for full-year 2017 to $1.745 billion.
  • The company said part of the decline was due to a drop in search results, likely the result of a change in Google's algorithm.
  • The stock briefly fell more than 16 percent but closed about 5.2 percent lower.
  • The company gave no significant update on a potential sale of its retail arm to focus on its cryptocurrency-related business.
An employee scans an order in the shipping area at the distribution center in Salt Lake City, Utah.
Ken James | Bloomberg | Getty Images

Shares of dropped in Friday after the e-commerce company reported a sales decline and no significant progress on a potential sale of its retail arm to focus on its cryptocurrency-related business.

The stock briefly fell more than 16 percent, but closed about 5.2 percent lower near $45.70, still down 25.2 percent for the week.

Overstock reported Thursday after the close a 13 percent drop in fourth quarter revenue to $456.3 million, and a 3 percent decrease in sales for full-year 2017 to $1.745 billion. Its retail business swung from profit to a net loss of $91.6 million in 2017, and the blockchain-focused Medici Ventures division lost a net $18.3 million.

Management noted a decline in online search due possibly to a change in Google's algorithm, competition from Wayfair, and that better results overall would not likely come until the second half of the year.

"We had, starting in May, a gradual erosion that just kept continuing of our SEO, our search engine traffic," CEO Patrick Byrne said on an earnings call, noting it accounted for about 40 to 45 percent of the business.

"Our SEO collapsed and it's especially confusing or troubling because we've always been great with Google, other than a hitch here or there," he said. There's "different theories as to what's going on, this may be due to – they switched to a machine-learning algorithm last May. ... There was this big problem, and the fact that we haven't had worse results is actually a function of the fact that all of our other channels are just singing."

The company said it fell in search results for "head terms" such as online shopping or living room furniture. Visits from outside those keywords did recover, and indexed pages quadrupled, helping sales, management said.

Recent SEO performance of vs. competitors

Source: Overstock fourth quarter earnings presentation

Byrne indicated on the company's previous earnings call in the fall that he could sell the retail business, and told CNBC in mid-December that he intended to have a deal within the next three months.

Work "is ongoing" with Guggenheim to consider strategic alternatives, including a sale of e-commerce assets, Overstock said in a release Thursday.

D.A. Davidson analyst Tom Forte had raised his price target on the stock in November on expectations of a sale of the e-commerce business and subsequently increased it to $110. On Friday, he lowered his target by $10 to $100 due to a cut in his valuation for the e-commerce business.

"We continue to have a high degree of confidence in our base case outcome (sale of the home e-commerce business and significant value creation from its Medici Ventures portfolio of 10 companies that to varying degrees leverage the blockchain)," Forte said in a note maintaining his buy recommendation.

Overstock also disclosed details on the U.S. Securities and Exchange Commission's investigation into Overstock's subsidiary tZero for its $250 million security token offering. Overstock has a license for an alternative trading system and tZero is developing a trading platform for digital token securities.

"We are in the process of responding to these document requests and intend to cooperate fully with the SEC in connection with its investigation, which will require the time and attention of tZERO and our personnel, and may have an adverse effect on our ability to focus attention on our businesses and our ability to raise capital," the company said in a 10-K filing with the commission.

Overstock had disclosed news of the SEC's information request in a separate filing earlier in the month. The commission has subpoenaed many cryptocurrency companies and funds recently as it looks to crackdown on fraudulent activity in the industry.

On the earnings call Thursday, Byrne also laid out the company's other investments related to cryptocurrencies and the blockchain technology behind them, including holdings of roughly 60 million "Ravencoins." The coin traded at 2.46 cents according to CoinMarketCap Friday.

"Quarter one is terrible," Byrne said. "I think you'll see us making nice progress in quarter two."

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