Internet Outsider

Overstock: No Jihad For Jack

A few months ago, as Overstock's IT systems (and business) imploded, CEO Patrick Byrne asked his father, Jack Byrne, to take over as sole Chairman.  According to the WSJ, Jack Byrne, a respected insurance mogul, has now gotten so frustrated with his son's other full-time job--Chief Short Excoriator--that he is about to resign in disgust.

"I can't tell whether this 'jihad' [against shortsellers] adds to the value of the stock or subtracts from it," the WSJ quotes the elder Byrne as saying, "but what it does is takes from Patrick's time." [Byrne] says he has voiced his concern to his son "endlessly," but so far hasn't been heeded.

As noted, we're with Dad on this one.

Overstock BusinessWeek Smackdown!

I must confess: Every time I am about to write off Overstock CEO Patrick Byrne as a "paranoid fool" (Mark Cuban's assessment), he does something that makes me smile.

For those who missed the firehose of press releases emanating from Overstock HQ last week, the story (according to Byrne) goes something like this.  A Business Week reporter, Timothy J. Mullaney, emails Overstock to do some preliminary research for a short piece on the company.  In the email, he includes some preliminary questions that, in aggregate, run several thousand words.  In them, Mullaney asks for a response to every allegation, rumor, and complaint that has ever been lobbed at Overstock and goes so far as to inquire about CEO Patrick Byrne's apparent weight gain (was it stress-related?).  Given the numerous issues surrounding Overstock/Byrne, most of Mullaney's questions were reasonable, and in the context of, say, a 10,000 word feature, would have been appropriate.  In the context of a piece one-tenth that size, however, they were beyond overkill.  Some, moreover, were inappropriate and snarky.  (Leave CEO weight monitoring to the National Enquirer, please).

So what does Byrne do?  Well, first, he takes the time to write answers to a lot of the questions.  This sort of thing is a waste of a CEO's time, especially for a little 1,000-word jab.  But Byrne-the-CEO clearly enjoys being Byrne-the-famous-and-entertaining-renegade and spending a couple of hours crafting such answers is par for his course.  He does duck several of the key fundamental questions--some of which I've raised here--and he devotes hundreds of words to detailing short-seller conspiracies, branding some Wall Street analysts charlatans (plausible), and then saying he never reads their stuff (also plausible, and perfectly defensible--this is also a waste of a CEO's time). This, too, however, is vintage Byrne.

And, of course, Byrne had another agenda in answering the questions: He sent them to a buddy, who published them.  Before the Business Week story ran.  With the (reasonable) logic that an on-the-record interview is on-the-record for both parties.  And the next thing that happened, according to Bryne, is that Mullaney called up screaming and threatening, called Byrne's two temp secretaries "dumb bitches", and vowed that, when the story came out, Byrne would be sorry.  So Byrne wrote Mullaney another note, and the buddy published that, too.

To anyone who has ever been burned by a reporter, Byrne's move seems like poetic justice.  Yes, Byrne should have told Mullaney that he might publish the answers--a reputable journalist with integrity, of which there are many, would have given him this courtesy.  On the other hand, given the colossal amount of time Mullaney was implicitly requesting, a bit more courtesy and gratitude on his part would have been nice, especially for someone who might later want to lecture temp secretaries about how he's not being shown any. 

In any case, the Q&A is an amusing read, and the image (true or not) of a reporter cursing out some temp secretaries because he's had the tables turned is worthy counterpoint to the media's perma-story about how the main character flaw of most corporate titans is ego.  And stay tuned for Mullaney's story--which, one hopes, will include his version of the events...

Overstock Christmas Gift: A Sleazy Preannouncement

So Overstock has apparently whiffed revenues for the second quarter in a row.  "Apparently," because CEO Patrick Byrne's confessional on Bloomberg TV sounds like a preannouncement, but thus far, the company (and Dr. Byrne) have studiously avoided that word.  In any event, per usual, the company will miss the bottom line.

Given the train-wreck of the third-quarter, another miss isn't surprising, but it will be interesting to watch how Dr. Byrne behaves from here.  His annoying trait, after all, is his pretense of uncommon straightforwardness and sincerity--just a "humble servant" reporting all the news, good and bad, taking full responsibility.  The straightforward approach to yesterday's news would have been a simple press release entitled "Overstock's Q4 sales to be less than expected."  Instead, Dr. Bryne delivered the news in an interview on Bloomberg and packaged it in insulting spin about how the company was now only growing twice as fast as the rest of the industry instead of four times as fast.  The company followed up this revelation with a press release regurgitating Dr. Bryne's comments and, of course, added a paragraph about how the Grand Overstock Short Conspiracy now evidently includes Bloomberg (the network apparently cut away "without warning" while Dr. Byrne was answering a question about his personal jihad against Overstock shortsellers.)

A preannouncement in a key quarter might also have warranted a conference call: presumably the Overstock faithful might like an explanation about why the company bombed.  And Dr. Byrne loves conference calls: Last quarter, he devoted an entire one (along with a PowerPoint presentation) to detailing the short conspiracy's organizational structure and its mastermind--an 80's criminal he calls the Sith Lord--and blaming it for the stock's recent declines.  But no explanatory conference call, it seems, is forthcoming.

The big issue here is not necessarily that Overstock is misfiring: lots of companies go through rough patches, and quarterly sales are hard for retailers to control.  The issue is management credibility. 

The first step toward recovery is for Dr. Byrne and Overstock to stop pretending to tell it like it is and actually start doing it.  The second is to start executing on the business plan (delivering steady, profitable growth).  If the company can't do this in the next quarter or two, it will be safe to assume that it can't ever do it--and that the shorts were right all along. And the third is to never mention the short conspiracy again.

Rocker's Attorney Pees Back

"Apparently, Patrick Byrne has trouble reading," Mr. Rooney [Attorney for Overstock lawsuit defendant Rocker Partners] commented. "In his November 17th press release, Dr. Byrne claimed that Rocker Partners' recently filed motion under the California anti-SLAPP statute 'do[es] not deny the substance of our lawsuit.'  Had Dr. Byrne read the extensive, sworn declaration submitted by David Rocker, he would see that Rocker Partners has done precisely that."

Rooney goes on to summarize hedge-fund manager David Rocker's denials of most of Overstock's allegations, and then adds a quote from the man himself:

"If Overstock truly wished to give the public a balanced view of the lawsuit and the record," Mr. Rocker added, "then it would post my declaration and our anti-SLAPP motion on its own website, so that people could measure it against the unsubstantiated allegations of the Amended Complaint and the vague and generalized declarations already posted there."

Next up: Comparative chest, thigh, and other measurements; a tequila-shot contest; a face-to-face trash-talking marathon; raw-egg chugging; frozen-steer-punching; and a good old-fashioned side-by-side peeing contest (judges to factor in both distance and time).

Overstock: Dr. Chutzpah and Mr. Byrne

Those of us who wondered whether Overstock's pathetic third quarter would humble the company's ever-entertaining CEO Patrick Byrne--or at least focus his impressive energy on the company instead of on an alleged conspiracy of research firms, and shortsellers--now have our answer: NFW.  On the contrary, Dr. Byrne is doubling down:

Though in the past their shills have accused me of making wild accusations, in their responses Rocker and Gradient do not deny the substance of my allegations, instead claiming that their behavior counts as 'protected speech.' ...

"Observers should also take note that the declarations we made public describe Gradient's practice of letting hedge funds order hatchet jobs, permit select clients to review and edit reports before publication, and then front run the research.  My question is this: if that is in fact how Gradient and Rocker operate, can all agree that is inappropriate, without dithering over specious claims about the First Amendment?

More...

Readers Agree: Overstock Customer Service AWOL

Three readers share Overstock customer-service horror stories (please see comments at end of post).  Overstock web traffic continues to grow--up 40%-plus year-over-year per Comscore--and CEO Patrick Byrne has been mercifully silent on the subject of dastardly short-sellers of late.  Judging from these three anecdotes, however, the company has serious work to do.

Overstock Pride Goes Before Fall

Hate to join the crowd kicking this sick horse, but for those who have followed the Overstock story over the last couple of years, the company's pathetic Q3 results--and the sheer predictability of same--can only leave one shaking one's head.

For the last two years, Overstock CEO Patrick Byrne has howled and ranted on television, in print, and on conference calls about the evil conspiracy of "shorts" who have teamed up to take his company down.  Ever since the stock peaked at $77 last December, every downtick (and there have been many) has been attributed to the malicious machinations of a cabal of shorts, journalists, analysts, Eliot Spitzer, and a master-criminal Sith Lord, a group allegedly so complex and well-organized that, a few months ago, Dr. Byrne devoted an entire conference call (and several PowerPoint charts) to detailing its organizational structure and announcing a lawsuit designed to blow it apart. 

To experienced market watchers, a CEO ranting about shortsellers is one of the better predictors of future collapse: CEOs confident in their companies and decisions don't waste time or energy belittling a small group of detractors who are, in any case, wrong.  When the detractors are right, however, and when they are harping publicly about things the CEO doesn't like to hear (and, yes, usually exaggerating the bad news), well, then, it's hunting season.  So for more than a year, Overstock watchers have heard Dr. Byrne rip the dastardly "lickspittles"--with the added entertainment benefit of also hearing him claim that he doesn't care what they say.  Dr. Byrne, according to Dr. Byrne, practices "Buddhist non-attachment" with respect to non-believers.  He just "walks past the barking dog." 

All this was merely entertaining until the Sith Lord conference call of a few months ago (if you haven't listened to it or read the transcript, you must--it's here), at which point it crossed into the bizarre.  In the days following, the transcript was forwarded around Wall Street, and the reaction was no longer "get a load of this guy!" but a hushed silence as listeners felt they were no longer witnessing a garden-variety megalomaniac but a paranoic losing his mind.  Not surprisingly, at no point in the PowerPoint presentation, legal complaint, or amended legal complaint, did Dr. Byrne or the company address the defendants' primary argument, which was that the stock was going down not because of lies but because Overstock's fundamentals were deteriorating. 

Of course, the interpretation of fundamentals is, to some extent, subjective, so there has always been a chance that Dr. Byrne was right: his company was in solid shape; the shorts were criminals.  Dr. Byrne has always prided himself on his apparent forthrightness, so every time the company goofed (frequently), Dr. Byrne stepped up and took responsibility.  And that's what he did this morning, when the company posted a train-wreck of a quarter. 

"Q3 was rough," he said in the press release.  "My bad."  (The conference call is progressing as we speak--update to come).

So it will be interesting to see how the lawsuit--and company--play out from here.  Earlier this week, Dr. Byrne's exceptionally successful father, Jack Byrne, replaced him as Chairman.  One wonders now whether one of the elder Byrne's first moves will be to force his talented-but-distracted son to drop the anti-short jihad and focus on his job (running the company)--or at least acknowledge that maybe, just maybe, the stock is dropping for reasons other than lies.  And one also wonders whether, given their combined control of the company (70%-plus), the Byrnes won't just take Overstock private and end the fight with shorts once and for all.

If Overstock were the gangbuster Amazon and eBay killer that Dr. Byrne often implies, this would be a no-brainer: why put up with the crap of the public market if you don't have to?  If it isn't, however, and Dr. Byrne & Co. have benefited from Dr. Byrne's ability to charm his stock up--and if, as seems to be the case, Dr. Byrne loves to see his name in the headlines--then Overstock will probably remain public.  One hopes for the latter, if for no other reason to see how this soap opera unfolds.