Why Overstock’s 4Q17 Revenue Performance Disappointed



Revenue down 13%

Overstock (OSTK) reported its 4Q17 results on March 15, 2018. The company’s revenue of $456.3 million missed the analyst projection of $526.2 million while falling 13% from 4Q16.

According to the company, changes in natural search engine algorithms made by Google negatively affected its top line performance. The company has been working to resolve this issue, but it added that it’s taking longer than expected to deal with the changes to the algorithms. The company added that its initiatives to boost revenue from other marketing channels, such as email and search engines, provided some cushioning.

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The company reports revenue under two segments: Direct Revenue (owned assortment sales through the company’s online and offline channels) and Partner and Other Revenue (sales of products owned by partners mostly through the company website). In 4Q17, revenue from the Direct Revenue channel fell 28% to $18.5 million, and revenue from the Partner and Other Revenue channel fell 12.5% to $437.8 million.

In 2017, Overstock’s revenue of $1.75 billion missed the analyst estimate of $1.82 billion while falling over 3% compared to 2016. Going forward, the company is substantially increasing its sales and marketing expenses to boost its e-commerce business. It will also invest in enhancing its distribution facilities and technology platforms to improve delivery times and enhance the customer shopping experience. It’s also revamping its Club O membership program, which will boast more benefits for members in the coming days.

Peers’ performances

In its 4Q17, which it reported on February 15, 2018, Shopify (SHOP) delivered revenue of $222.8 million, a rise of 71% and better than analysts’ consensus estimate of $209.3 million. The company’s performance over the holiday season was robust, with $1 billion in gross merchandise value earned over four days from Black Friday to Cyber Monday.

In its 4Q17, which it reported on February 22, 2018, Wayfair (W) delivered a 46.2% rise in revenue to $1.44 billion, easily beating analysts’ consensus estimate of $1.36 billion. The company benefited from growth in international markets and an increasing number of active customers (up 33.2% in 4Q17) in its Direct Retail business.


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