Slower Revenue Growth, Higher Expenses Send Overstock to Q2 Loss

August 4, 2017  by Larry Thomas in Economic News, Industry   

The retailer said sales were hurt by changes Google made to its natural search engine algorithms beginning in May. While the company worked to adapt to those changes, it put more emphasis on other sales vehicles such as sponsored search, which carry higher marketing expenses.

Revenue for the quarter totaled $432 million, up from $418.5 million in last year’s second quarter. The most recent quarterly loss compared with a loss of $904,000 or 4 cents per share in the same quarter last year.

The average order size rose 4%, and the number of orders was up 2%.

“In May, Google began its annual algorithm adjustments, but this year the volatility introduced and the length of the tuning has been significantly greater than any previous year,” CEO Patrick Byrne said in a letter to shareholders accompanying the results. “This created tremendous headwind for our business from May through the summer thus far.”

However, he said Overstock has “reorganized a large number of resources around addressing this current challenge, as well as preventing it from ever occurring again.”

Overstock’s blockchain technology business had a pre-tax loss of $3.3 million, which wasn’t a surprise, but Byrne admitted the $6.4 million pre-tax loss in the retail business “was unpleasant, but not as heart-stopping as it might appear.”

“In truth, almost all aspects of our retail business are running well,” he said. “Q3 has already shown a small bounce back in the right direction, and I believe that by September we will be back on track.”

For the first six months of 2017, revenue rose 3.9% to $864.5 million. The six-month net loss totaled $13.4 million or 52 cents per share. In the first half of last year, Overstock had a profit of $12.5 million or 49 cents per share, but that figure included a one-time gain of $19.5 million from a legal settlement.