Overstock.com Inc. (NASDAQ: OSTK) stock has risen over 177% in the past three months as the online retailer was having conversations with multiple potential buyers for sale of the retail business. The company has decided to transform itself from e-commerce to the blockchain business. Will the stock continue to rally after the sale of the retail business?
The stock is likely to retreat after the sale as competition has been mounting from other companies, which started to venture into the blockchain. Also, the expenses of the company’s blockchain segment, tZero, are increasing due to non-commercial launch and this could hurt the results. This, in turn, will drag the stock down.
The company has been considering a range of potential transactions, including a sale of its retail business and additional equity or debt financing. After the sale of the retail business, the focus of the company continues to remain in the blockchain technology. Overstock believes that bitcoin and other cryptocurrencies are the rapidly growing opportunity despite retail remaining competitive and challenging.
The company’s retail business, which could be worth $100 million, is rapidly returning to profitability. This could make Overstock to hold on to the business for at least in the near-term. In contrast, the sale has been delayed due to an SEC inquiry into its cryptocurrency-focused unit, tZero. Investors expect the online retailer to perform much better in the retail business ahead of the holiday season.
The tZero unit is burning cash of Overstock as the trading system was not launched commercially. The unit will require substantial additional funding for technology development and regulatory compliance, as well as for working capital, marketing and sales, and other costs for developing new products and businesses.
Overstock’s consolidated cash and cash equivalents balance as of June 30, 2019, decreased by 14% to $121.3 million from $141.5 million as of December 31, 2018. This was due to cash outflows from operating activities. The company is expected to incur additional expenses related to the growth opportunities it seeks in its retail business.
The tZero holds a limited cryptocurrency inventory on hand to facilitate its exchange services and has access to customer information. This is subject to the risk of cyber-attacks. Also, the prices of cryptocurrencies and other digital assets tZero hold have historically been subject to dramatic fluctuations and are highly volatile. These risks are likely to hurt the company’s stock.
The semiconductor industry is a rapidly growing business segment that currently thrives on the digital transformation wave. The demand for memory chips and other semiconductor products increased over the years,
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