When you first think about e-commerce stocks, names like Amazon (NASDAQ: AMZN), Alibaba (NYSE: BABA), and Shopify (NYSE: SHOP) probably come to mind. These companies are certainly Wall Street darlings that have generated massive returns, but sometimes its best to look for the next big thing if you really want to find a great investment opportunity. Overstock.com (NASDAQ: OSTK) is a nice alternative to the bigger e-commerce players and it is a stock that has generated draw-dropping returns for investors this year.
Overstock is an internet retailer that has been benefitting from the “stay-at-home” trade. It’s a business that essentially went from penny stock to one of the hottest companies in the stock market in the span of months. The stock is up over 2500% since hitting a low of $2.52 per share on March 16th and just reported a blowout Q2 earnings report which has shares soaring even higher. Here are a few reasons why Overstock has been rallying and why it offers a great opportunity to gain exposure to the e-commerce market.
Unique Business Model
Overstock is a unique company in several ways. The retail portion of its business offers furniture, home décor, and home improvement items to customers at sharp discounts. It purchases its products from warehouses and suppliers that need to get rid of excess store inventory. Since many small retailers aren’t able to use third-party outlets to sell what they don’t need, Overstock offers a unique value proposition to them. The company then turns around and sells those excess products to its customers using its Overstock.com e-commerce platform for significantly less than what physical outlets charge.
It’s a stock that has been greatly benefitting from the pandemic since the shift towards online shopping has rapidly accelerated and because home improvement products are in high demand. Overstock has revenue streams from merchandise sales, commission fees, and advertising revenue on its shopping pages. The uncertainty in the economy also works in Overstock’s favor, since it offers very affordable price points on its products.
While the majority of Overstock’s revenue comes from its retail business, the company is also involved in fintech with its tZERO and Medici Ventures divisions. The fact that Overstock is involved in blockchain technology shows that there is more to this business than just e-commerce. With cryptocurrencies on the rise again, this business segment could end up being huge for Overstock in the future.
Stellar Q2 Earnings Proof of Growth
Overstock reported Q2 earnings per share of $0.84 cents which was a 221% year-over-year increase from it’s ($0.69) loss in Q2 of last year. That’s quite the turnaround for a company that was previously struggling to attain profitability. Net revenue in Q2 also increased by 109% year-over-year to $783 million. Perhaps the most impressive number from this stellar quarter is Overstock’s retail gross sales of $1 billion, which was a 114% year-over-year increase. These numbers are telling investors that Overstock is taking full advantage of its growth opportunities at this time.
It also appears that the previously mentioned blockchain business is starting to catch on. tZERO, which is basically a trading platform that allows investors to trade digital tokens, saw record increases in trading volume and 129% year-over-year revenue growth to $13 million in Q2. The bottom line here is that this Q2 earnings report was resoundingly positive for the company and helps to justify the massive move up for the stock. The stock was up over 25% on the first day of trading after the earnings release.=
Government Contracts and Digital Dividends
Another reason that this stock has been soaring has to do with the recent government contract the company received. The General Services Administration (GSA) contracted Overstock to build out an e-commerce platform for the Federal Government. It’s a pilot program that is intended to improve the process of obtaining furniture and other items for government agencies. The fact that Overstock was selected as one of three online retailers to help out is great news for shareholders.
There’s also the intriguing digital dividends that Overstock pays out. These dividends are A-1 preferred stock shares that trade on the company’s tZERO exchange. The payout in Q2 was 1:10, meaning that for every ten shares of OSTK common stock investors received one A-1 share. It’s yet another interesting perk of owning shares of Overstock that could end up paying off nicely over time.
The Golden Age of E-Commerce
It’s safe to say that we are entering the golden age of e-commerce. With the accelerated adaptation of online shopping, companies like Overstock are poised for massive growth going forward. The blockchain component of this company is also an intriguing prospect that should not be overlooked. Overstock is a nice alternative to larger e-commerce companies and should continue putting up strong numbers for the rest of the year. Just keep in mind that the stock has had a truly monumental move up and could be due for a pullback soon.
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