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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.

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