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Behind Overstock’s 4Q17 Bottom Line Performance

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Adjusted loss widens

E-commerce retailer Overstock’s (OSTK) adjusted EPS (earnings per share) came in at -$0.47 in 4Q17 compared to the analyst projection of -$0.05. The company’s bottom line was impacted by lower revenue and higher expenses.

On a reported basis, the company reported EPS of -$3.72 in 4Q17 compared to EPS of $0.12 in 4Q16. Substantial increases in its provision for income tax due to the recent Tax Cuts and Jobs Act primarily marred Overstock’s bottom line performance. The company’s provisions for income tax ballooned to $71.9 million compared to $1.1 million in 4Q16.

Going forward, management has projected that a rise in marketing—mostly due to higher digital marketing expenditure—will lead to increases in Overstock’s pretax losses. For 1Q18, the company’s pretax loss is expected to be ~$50 million. Its pretax loss in 4Q17 was $24.9 million.

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Cash position overview

The company’s cash and cash equivalents stood at $203.2 million on December 31, 2017. It used $35.3 million in operating activities, and its free cash flow was -$58.9 million in 2017.

Where do its peers stand?

Wayfair delivered adjusted EPS of -$0.58 in 4Q17, lower than analysts’ expectations of -$0.52 and the -$0.34 it reported in 4Q16. A considerable increase in its operating expenses offset the benefit of its higher revenue.

eBay (EBAY) reported adjusted EPS of $0.59 in the quarter, in line with analysts’ consensus estimate and up 9.3% on a year-over-year basis. The company’s bottom line results were driven by a lower tax rate, share buybacks, and increases in revenue, which mitigated the negative impact of foreign exchange headwinds.

Shopify (SHOP) reported adjusted EPS of $0.15 in the quarter, topping analysts’ consensus estimate of $0.05 and the break-even earnings it reported in 4Q16. Higher sales and gross margins cushioned its bottom line despite the rise in its operating expenses.

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