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About the Firm
CAVEAT EMPTOR
Jordan S. TerryNovember 16, 2014
2014 STONE STREET ADVISORS LLC 1PUBLIC
A Different Kind of Research Firm
Stone Street Advisors LLC (SSA) was founded in 2011 to address problems and gaps in the fundamental investment research business. As a result, we are: Independent
We have no outside investors We choose which opportunities to pursue, whether on our own or for clients; hedge funds, family
offices, consultants, and HNW individuals
Unbiased We do not invest in securities or derivatives, nor are members allowed to actively invest. We do not
talk our book; we talk our research, or rather, let our research do the talking
Accountable for performance Our reputation is our business Of 24 ideas (long, short, and L/S special situation) since 2011, 17 are still outperforming the S&P500 Traditional longs by 48.7%, shorts by 63.7% Special situations longs by 30.2%, shorts by 32.8%
Long-term, value-oriented We seek to identify investment opportunities with at least 50% upside (long or short) over the next 1-
3 years, sometimes longer for special situations
On-demand Whether a client wants our expert opinion, a second opinion on their own work, or lacks resources to
handle due diligence, research, publishing, idea-sharing, and coverage internally, we are there to help
2014 STONE STREET ADVISORS LLC 2PUBLIC
Sustained Outperformance Long & Short
2014 STONE STREET ADVISORS LLC 3PUBLIC
2014 STONE STREET ADVISORS LLC
Overstock.com: 10x Upside Potential
Jordan S. TerryNovember 16, 2014
4PUBLIC
An accidental find - a uniquely special situation.
For Those Still Reading, Let Us Explain
2014 STONE STREET ADVISORS LLC 5PUBLIC
Over the past 15 or so years, most every analyst and investor has given up, moved on, or otherwise grown tired of Overstock.com for a number of well-known reasons
After four months of analysis, we believe: A $1.5 billion/year business with an installed customer base riding a large secular growth wave
is hard to ruin Despite a number of ongoing decisions ranging from the nave to fantastically stupid, OSTK has not
only survived, but grown significantly while many of its generation have long-since disappeared
Patrick Byrne may have a history of semi-spectacular hijinks and many a distraction, but Overstock is more than one man and his >25% stake in the company
Despite Byrne and the influence he wields, this is a solid opportunity for a patient, operations-focused activist to push the company to the next level
Absent an activist investor driving the company to restructure, due to the aforementioned secular growth in online shopping, OSTK should be able to grab billions in incremental revenue as the market grows at 10.5% through 2023 (and thats just in home goods!) In our conservative base case, with OSTK growing slower than just the overall online home goods
market, with no operational improvement whatsoever, OSTK is worth $25/share (almost fairly valued) In our bull case, with the firm expanding internationally, its worth $95/share (+290%) In our activist/restructuring case, we think the stock is worth $222 (+813%)
Across all 20 scenarios we modeled, including those in which the equity ends up worthless, the average valuation is $82/share (+238% from 11/14/2014 close)
Company Background
Overstock.com (OSTK) is an online retailer primarily selling discount, replenishable, and closeout merchandise Brand name, non-brand name and closeout merchandise, including
furniture, home decor, bedding and bath, housewares, jewelry and watches, apparel and designer accessories, electronics and computers, sporting goods, books, CDs, DVDs, video games, cars, and insurance
Inventory lite model; 89.8% revenue from fulfillment partner, 10.2% from firm inventory for 9 months 2014
Launched Supplier Oasis Fulfillment Services 5/2014; similar to Amazon Fulfillment (few details available thus far)
No material revenue outside the United States
Founded 1997, launched website 1999, IPO May, 2002 Market Cap: ~$580mm, EV ~$470mm $1.4bn LTM revenue, $11.7mm operating income, 0.8% OM No long-term debt
2014 STONE STREET ADVISORS LLC 6PUBLIC
Overstock.com
2014 STONE STREET ADVISORS LLC 7PUBLIC
A screenshot of the homepage during October, its 15th anniversary, allowing founder & CEO Byrne the opportunity to toot his own horn
Financial Performance & Investor Returns
60% revenue CAGR 99 -13, but: Not profitable until 2009 Only profitable in 4 of 15 years (09, 10, 12, and 13) Rev CAGR 99-05: 175.3%; Rev CAGR 06-13: 7.5% Majority of cumulative profit is from deferred tax
asset valuation allowance release in 2013 Stock price only appreciated ~39% from 5/30/2002
IPO - 5/2014; ~1.5% annualized AMZN up ~1,600%; ~27% annualized over same period
Stock down ~21% YTD Down more than 50% as recently as 10/9
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OSTK Stock Performance Since IPO
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OSTK Stock Performance - YTD
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OSTK Income Statement
Inconsistent revenue growth
Is Sales & Marketing spend driving revenues?
Where is Tech spend going?
Bipolar G&A Generally poor
disclosure, reporting of activities driving OpEx
Very low EBIT and EBITDA per Employee
2013 Net Income driven by ~$79.7mm DTA valuation allowance release
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OSTK Operating Performance
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OSTK Cash Flow
EBITDA and OCF positive
Current liabilities payables and accruals - starting to enter yellow flag territory
As co profits NOLs/DTAs become bigger part of CF
CapEx needs much further scrutiny, transparency, accountability (more on this later)
Unclear what impact if any Supplier Oasis Fulfillment System has or will have on cash flows
New HQ largest investment to date
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OSTK Balance Sheet Inventory-lite model Cash conversion
cycle negative ~10-15 days
~$293mm Fed & State combined NOLs available
Precious metal foray Payables & accrued
liabilities growth PV Operating leases
~$44mm with >50% of payments due 5+ years out
Unused debt capacity even with new HQ loans
2014 STONE STREET ADVISORS LLC 14PUBLIC
Haste + More Money Than Sense = Waste
OSTK had >$100mm of idle cashand nothing to do with it Decided to spend ~$100mm on a new 230,000 sqft corporate HQ - in the shape of a peace sign -
utilizing cash and ~$55mm in new debt OSTK currently leases ~150,000 sqft What will additional 80,000 sqft be used for?
OSTK purchased the land for new HQ in September for $10.8mm OSTK entered into a Construction Agreement on 10/13 OSTK entered into convertible construction/term loan and RC facility 10/24
Project estimated cost ~$96mm; we estimate $120mm
There is absolutely no reason to build this HQ Would eliminate ~$5-10mm/yr of lease expense, making profitability easier
This is one of the most egregious examples of corporate largess and tone-deafness we have ever seen, particularly because: No indications that board or management have considered any alternative
uses of capital Directors and management blissfully unaware theyre violating their duties
to ALL shareholders and/or simply do not care
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The Peace Coliseum
Management is not exactly focused on maximizing shareholder value "It's exciting to be at a point where we can build the Peace Coliseum to unite
our employees," added Overstock President Stormy Simon. "It will be the coolest place to work ever."
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OSTK Trades At Significant Discount
Easily-distracted, litigious, entrenched CEO Byrne engaged in ongoing PR and legal vendetta against evil short sellers,
brokerages, journalist shills, captured regulators, other critics Newest distraction Bitcoin-based stock market (Wired, 10/2014)
Ineffective corporate governance - complicit board of enablers and excusers Fairfax/Watsa largest public shareholder passive, even with board seat
Small capitalization, thinly traded, high insider ownership No vision/market not buying management vision Inconsistent/poor execution and performance Lack of public comps
Only good US comp, Wayfair, went public on 10/2/2014
Obnoxiously clear disregard for the interests of public shareholders Suboptimal capital allocation/capital structure No clear catalyst
2014 STONE STREET ADVISORS LLC 17PUBLIC
How Much of a Discount?
Among peers, OSTK trades at: P/E 75% below industry median P/S 57% below industry P/B 15% below industry P/C 55% below industry
Some numbers behind the discount: GM 49% below industry median OM 60% below industry Trailing 5-year revenue growth 37% below industry
Source: Finviz
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Patrick Byrne: Founder & CEO
Owns ~27% of outstanding shares
Family owns additional 5.2% last reported (2010)
No other 1% owners among board or named executives
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Byrne Has Destroyed Institutional Confidence
In the absence of a responsible board or engaged investor, Byrne has been held unaccountable for his actions, hurting the business and the stock
Due to Byrnes sometimes spectacular hijinks, no one wants to go near him or OSTK Fairfax only investor with >3% No single mutual fund owns >1%
Ample investment opportunities may exist in the securities that are excluded from consideration by most institutional investors. Picking through the crumbs left by the investment elephants can be rewarding. Seth Klarman, Margin of Safety
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Top Institutional Holders
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Top Mutual Fund Holders
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Supply of Friendly Investors Has Dried Up
Some of OSTKs largest investors have neither been entirely objective nor motivated purely by economic return Patrick Byrne->John J. Byrne->Warren Buffett->Prem Watsa/Fairfax:
John Byrne rebuilt & sold GEICO to Buffett, Watsa the Canadian Buffett
Prem Watsa/FairfaxFrancis Chou: Worked together John J. Byrne->White Mountain Insurance->Scion Capital/Michael
Burry: John Byrne-led White Mountain was an early Scion investor
yet still doubt OSTKs value Chou: 3.1mm shares 2/2013; 0.6mm shares 2/2014
We first invested in OSTK in 2006 and since then, the results have been positive but sub-par to say the least. Looking back, we paid too much for it and the intrinsic value that we estimated seven years ago was too high. (Chou Funds Semi-Annual Letter, 2013
Sold covered calls against position (now expired)
Fairfax is the sole management-friendly investor left
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Independent Directors
Board of directors includes independent directors by legal/exchange definition only Fairfaxs Samuel A. Mitchell an accomplished value
investor, but Byrne supporter; director since 2010
Barclay F. Corbus also technically independent, but as CEO of WR Hambrecht, which brought OSTK public, questionably independent; director since 2007
Joseph J. Tabacco, Jr. - class action securities lawyer helped with various legal challenges; director since 2007
Jonathan E. Johnson III Chairman since 4/2014, former President of OSTK 2009-2014, and employee since 2002
Allison H. Abraham Independent; director since 2002 IPO
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Independent Directors: Asleep at the Wheel
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An Opportunity Seeking An Activist
We have developed a restructuring plan to improve the company (and/or return cash to shareholders)
Would boost valuation multiples, set/raise floor on stock price, wake-up sell-side analysts (no real coverage since 2009), and signal other institutions its safe to test the waters again
We project significant returns - up to 10x, with manageable downside
2014 STONE STREET ADVISORS LLC 26PUBLIC
The Approach Collaboration First
Since the beginning, Byrne and OSTK have been the subject of varying degrees of scorn from Wall Street and the financial media (rightfully and wrongly so)
No investor that we know of has attempted to engage the board or management in a positive manner ( i.e. long the stock)
We believe the optimal strategy is to make it very clear to management and the board that the investor seeks to work with, not against them
Must convince board that focusing on core growth and profitability now will allow management time to work on pet projects later
We do not believe any management changes are necessarily critical to turning around the company (but more on this later), nor do we believe executive comp should be reevaluated
Emphasize investor and management/board want the same thing - to return the company to double-digit revenue growth and ensure consistent profitability
Investor(s) should try to engage Fairfax/Watsa
2014 STONE STREET ADVISORS LLC 27PUBLIC
Beyond Financial Engineering Improving the Business
Buyback would have created shareholder value, but the real value creation will come from strategic, operational, and governance improvements: Eliminate/minimize distractions especially Bitcoin Design and begin implementation of major international expansion to drive
significant revenue growth, whether organic, JV, or M&A Improve each vertical and overall website, exit non-core verticals Push mobile platform; little mention of mobile specifics on recent CCs Improve/revamp Club O rewards program Supplier Oasis program analysis, oversight, execution Optimize inventory management, product mix; improve GM Improve Sales & Marketing strategy/spend Get G&A expenses under control Better CapEx/Capital allocation decision making and efficiency Add three truly independent directors with significant experience in each of:
e-commerce, accounting/audit, and governance Incentivize board to be accountable to ALL shareholders
2014 STONE STREET ADVISORS LLC 28PUBLIC
Step 1: Eliminate Distractions Bitcoin & Beyond
2014 STONE STREET ADVISORS LLC 29
OSTK has an entire new team dedicated to creating a Bitcoin-like stock market
Committing between 5-10% of OSTK cash flow single-digit millions to companys cryptosecurity project
OSTK has naming rights through 2016 to Oakland As & Raiders stadium Why? Why still using abandoned O.co name?
New television commerce campaign
Precious Metals Why? Ancillary business lines (Autos,
insurance, O.biz, etc)
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Rethink Strategy & Operations, Top-to-Bottom
International expansion Currently only pushing into two unnamed countries (2013FY call) Larger international expansion plan would drive significant double-digit revenue growth
Vertical-specific strategies Ranked #7 of 10 online furniture retailers in est. $220bn furnishings market with
International Expansion The Catch-Up Game
Virtually EVERY other e-commerce company, globally, has expanded beyond its home market organically, via JV, and/or through M&A:
Rakuten (Japan): Founded 1997 Began expansion in 2005 primarily via M&A with Buy.com (US, 2010), Priceminister (France), Ikeda (Brasil),
etc. 9/2014 purchased Ebates.com for ~$1bn
MercadoLibre (Argentina) Founded 1999; eBay ~20% shareholder since 2001 Acquired DeRemates operations in 8 countries in 2005; in 13 other Latin American countries and USA by
2014
Asos (UK) Founded 2000, profitable by 2003/4 and every year since Launched French, German, and US websites in 2010; Australian, Italian, Spanish in 2011 Opened Sydney office in 2012; USA, France, Germany, China offices in 2013
Wayfair (U.S) Founded 2002; consolidated >200 individual websites into one 2011, public 2014 Launched in UK, France, Germany in 2014; Offices in Ireland, Sydney, London, and Berlin Net revenue outside North America $41.5mm or 4.5% total net revenue
Zalando (Germany) Founded 2008 Expanded internationally in 2009; in 13 other European countries by 2014
2014 STONE STREET ADVISORS LLC 31PUBLIC
Driving Revenue Growth - Market Size + Penetration
OSTK is a major player in the online furniture & home goods market U.S. furniture and home dcor was a $233bn market in 2013
(Euromonitor, 2013) Projected 2.5% CAGR through 2023 to $297bn Western Europe home goods market was $292bn in 2013
Home goods online penetration is lower than other categories (comScore, 2013) U.S. home goods market 7% U.S. apparel market 15% U.S. consumer electronics 54%
2013 U.S. online home goods market: $16.3bn If 2023 home goods penetration reaches current apparel level:
U.S. online home goods market grows 173% to $44.5bn U.S. online home goods market CAGR 10.5% 2013-2023
Opportunity for OSTK to grab billions in new revenue in just one vertical!
2014 STONE STREET ADVISORS LLC 32PUBLIC
Know Your Customer, Focus On Your Customer
While OSTK does not provide gender or demographic stats, Wayfair and other market research firms tell us: Customers are primarily female (Wayfairs were 70% in
2013)
OSTK shows similar gender skew (Alexa, 9/2014)
As millennials grow older and incomes rise, more and more purchases of higher-ticket items will be made online
OSTK sales/marketing strategy should focus on attracting and retaining influential millennial females
With female Bitcoin adoption around 5%, all Bitcoin initiatives should be delayed or cancelled
2014 STONE STREET ADVISORS LLC 33PUBLIC
Rising Avg. Order SizeBut Orders Flat or Down
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We Have the Technology, But
OSTK Android app is Editors Choice in Google Play Store, but little if any discussion on calls and SEC filings Vague mentions, e.g: over 50% of our traffic is now mobile (2014q3
call) No mention of purchases in, or revenue from mobile apps
OSTK not in top 10 retail websites in the U.S; Etsy ranks higher! (comScore, 2014)
National Retail Federation Favorite 50 Retailers Rank has declined from #9 in 2009 and 2010, #12 in 2011 and 2012, to #15 in 2013
Overstock.com is the 647th most popular website globally (Alexa, 11/2014) Asos #577, Wayfair #1,245, Walmart #156, Bestbuy #266, Target #286
Overstock.com estimated monthly visitors 14.82 million 10/2014 (sentio.com)
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Top 10 U.S. Retail Websites - No Overstock
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Overstock.com Website Rank
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Source: alexa.com, 11/16/2014
Overstock.com Competition Approaching
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Source: sentio.com, 11/16/2014
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Overstock.com - Interest Waning
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Source: Google Trends, 11/16/2014
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Rethink, Revamp Club O Membership Program
Club O Membership Program ~275-300,000 members (mid 2014) Costs $19.95/year Member Benefits include
5% Club O Rewards on every order Up to 40% off select items, Free standard shipping
Relatively high breakage from expiring promotional memberships Order size growing more than twice as fast as rest of site
Compare to Amazon Prime 20 million+ members Costs $99/year No rewards or special discounts Free two-day shipping Unlimited access to Amazon video, music, e-books Members spend about twice as much as non-members
2014 STONE STREET ADVISORS LLC 40PUBLIC
Employee Productivity & Efficiency
Corporate Employees increased ~25% 2012q1 to 2013q4 LinkedIn shows 1,058 employees with Overstock.com as
current employer v. reported 885 corporate employees at 12/31/2013 19% increase in 9 months? OSTK website shows 1,500 total employees, q3 slides only count
corporate employees No explanation, no further details given on total headcount
OSTK employees appear efficient and productive on revenue generated basis, ranking 6 out of 14 among online retailers, between AMZN and Wayfair
On EBITDA/Employee, and EBIT/Employee, OSTK drops to 11 out of 14, barely above much younger Wayfair
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Does OSTK Have a Headcount Problem?
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Revenue/Employee is Above Industry Average
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EBITDA/Employee is Well Below
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and EBIT/Employee is Worse
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Lack of OpEx Discipline & Accountability
In the past 5 years, OpEx has ranged from 16.1% to 18.6% of sales
OpEx up 47% 2009-2013 Decreased sequentially only from 2011-2012 after
attempted rebranding to O.co failed
Little if any disclosure or discussion of where the money is going, what its being used for
OSTKs poor OpEx discipline creates opportunity to cut costs and increase efficiency
Need to tie spending to results (and lack thereof); hold departments and managers accountable
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5-Year OpEx CAGR: 10.2%
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Over same period, Revenue CAGR is only 10.4% OpEx management is the key to profitability!
PUBLIC
OSTK OpEx vs. Global E-commerce Comps
2014 STONE STREET ADVISORS LLC
OSTK shows adequate, above average Revenue/Employee in all but one of the past five years among global peer group, but: EBITDA/Employee is, on average, 77% below its peers EBIT/Employee is, on average, 89% below its peers
48PUBLIC
Reduce OpEx to Industry-Average Levels = Profit
2014 STONE STREET ADVISORS LLC
If OSTK OpEx was as efficient as that of its peers, the company would have been significantly more profitable in each of past five years: EBITDA would have been 259% higher, on average EBIT would have been 445% higher, on average
49PUBLIC
Financial Model Scenarios & Assumptions
Four capital structure/capital allocation scenarios Management: New $120mm HQ, $46mm mortgage Special dividend: $100mm (2015q2), $40mm new debt Base: No HQ, no new debt, no return of capital Buyback: $100mm buyback (2015q2), buy 20.5% of shares
out/33.2% of float at 15% premium, $40mm new debt
New debt assumptions: Assumed closing at 6/30/2015 $32mm TL, $15mm RC, $8mm drawn at closing No TL cash sweep 100% RC repayment Rate driven by FY2015 coverage ratio
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Financial Model Scenarios & Assumptions, II
Five WC/P&L scenarios Base: 10% rev growth, below projected home goods growth of 10.5%
annually; WC days/% rev across, flat margins Management: From conference calls, etc; unrealistically optimistic, more
Byrne CapEx and technology OpEx Bear: Lower and negative rev growth, margins at bottom of historical range,
ballooning OpEx, CapEx, poor WC management Bull: Slightly higher rev growth than management, better margins and WC
management Activist: Changes identified in pervious slides addressed, e.g. international
expansion, Byrne CapEx spun-out or eliminated
WACC Cost of equity using levered beta, cost of debt from implied rating spread Equity capitalization recalculated based on sharecount and target P/S each
period, set to 0.4x (approximate current multiple)
55% discount on cash Reflects OSTK P/C valuation 55% below industry average
2014 STONE STREET ADVISORS LLC 51PUBLIC
Valuation & Scenario Analysis
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Our bear case subjects OSTK to conditions far more harsh than its likely to face, thus we view the risk of permanent loss of capital to be remote
A more realistic bear case would have the stock in the $10-$15 range
The New HQ Destroys Shareholder Value
2014 STONE STREET ADVISORS LLC 53PUBLIC
In base P&L with new HQ, OSTK equity is worth $25.08 ($607mm) If OSTK had abandoned the new HQ and changed nothing else, it
would have been worth 43% more ($866mm) The new HQ alone destroys $260mm of shareholder value versus
doing nothing
If OSTK had abandoned the new HQ and done a buyback instead, it would have been worth 36% more ($823mm) Doing a buyback instead of building the new HQ would have created
$215mm of shareholder value
The Board needs to be held accountable for not only allowing this to happen, but for giving it their blessing
All efforts should be made to delay/cancel the new HQ, but if, as we expect, it gets built, our work shows the operational and strategic initiatives alone will more than offset damage done by the endeavor
A Solution to Byrne CapEx Value Destruction
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We estimate the increased tech CapEx weve seen in recent years which we expect to continue destroys ~$380mm of shareholder value Increased tech OpEx over maintenance & core growth adds to the destruction,
but is difficult to quantify due to opaque reporting
Byrne appears extremely passionate about, and interested in bitcoin and other technology development; less so running OSTKs e-tailing business
We suggest OSTK spin-out its non-core tech operations into a new entity to be acquired and controlled solely by Byrne to do with as he pleases
Reflecting his interests, Byrne should step down as CEO of OSTK and sell part of his OSTK holdings to finance the acquisition of the spun-out tech operation
Shares can be sold publicly and/or OSTK can buy (some of) them back Spin-out immediately value-creating/enhancing for OSTK Byrne departure from C-suite sends strong signal to markets that
management is finally focused on running the core business
Risk Factors Patrick Byrne
Not motivated by profit Difficult to predict how he will react when approached,
regardless of the tone and/or factual evidence presented
Utah and Salt Lake City media will take his side, as will Utah government and other officials
We expect entire board, including independent directors, to fully support him to their last breaths
Fairfax likely to defend him, despite interests being better aligned with active investors
It is critical that new investors emphasize desire to work with management for the benefit of all
2014 STONE STREET ADVISORS LLC 55PUBLIC
Risk Factors Margin of Safety?
~$1.5bn/year business with installed customer base, well-known brand, but questionable, due to: Minimal hard assets Value of IP/intangibles? Unpredictable cashflow No moat or structural barriers to entry (In)ability to realize value of $293mm in NOLs No institutional support (besides Fairfax)
Litigation: Currently fighting various patent/IP infringement claims California County District Attorneys suit for violations of consumer
protection laws still under appeal Deepcapture.com defamation, etc. suits Still pursuing lawsuit(s) against brokers (e.g. Merrill Lynch)
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Risk Factors - Execution
Execution We expect resistance to any suggestions and proposals from
management and board Timing
OSTK has already completed purchase of land for new HQ, signed construction agreement, and secured construction loan
If management/board is not receptive to investor suggestions, proxy fight may become inevitable Proxy fight proposals/nominations must be received between
1/7/2015 and 2/6/2015 Shareholders cannot call special meetings
Many fund managers/analysts critical of Byrne/OSTK unlikely to participate this time around
Many, if not most journalists critical of Byrne/OSTK unlikely to pick up pen after being personally assaulted by Byrne
2014 STONE STREET ADVISORS LLC 57PUBLIC
Risk Factors Accounting & Reporting
OSTK has restated financials more than once Restated financials from 2002q1 to 2005q3 due to
inventory accounting errors 2008 10K/A: (OSTK is) restating its consolidated financial
statementsfor the years ended December 31, 2007, 2006, and 2005
Errors were regarding refunds and credits to customers. Affected accounts include revenue (net of returns
expense), accounts receivables, and deferred revenue Impact of restatements:
2007: Increase net loss by $4.4mm 2006: Increase net loss by $5.8mm 2005: Decrease net loss by $440,000
2014 STONE STREET ADVISORS LLC 58PUBLIC
Risk Factors Accounting & Reporting
After accounting/reporting/control errors identified (initially, by shorts, investigative journalists, and fraud experts):
OSTK fired Grant Thornton after being asked to restate 2008 10K
Grant Thornton replaced by PwC as PwC did not believe it was necessary to restate 2008 10K
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Risk Factors More Accounting Errors?
In the thirteen years since the IPO, seven years have been found to contain errors
When challenged on accounting especially by outside parties - Byrne is quick to not only dismiss issues but replace auditor
Will OSTK face further accounting/reporting/internal control issues?
History may not repeat, but it certainly rhymes
2014 STONE STREET ADVISORS LLC 60PUBLIC
Co-Founder of OSTK Was an auditor with PwC from 1996-1998 Partnered with Byrne in 1999; COO, President, board
member Retired in August 2003 When I screwed it up a couple years ago, he came out of
retirement and has played a decisive role getting it back on track. -Byrne (on Lindseys return in 2006)
Resigned year end 2007 to spend time on outside ventures
Stock Price $27.40 when Lindsey came back VS $13.72 when he left again, right before OSTK ran into aforementioned accounting issues
2014 STONE STREET ADVISORS LLC
Jason Lindsey - The Vanishing Act
61PUBLIC
Most recent SEC Form 4:
1/16/08 no longer required to file
Directly owned 42,238 shares
Indirectly owned 130,000 shares through Team Lindsey, LLC
Why would the ex-President, COO, and board member suddenly leave a company he started and built, and reduce his holdings like this?
2014 STONE STREET ADVISORS LLC
Jason Lindseys Stake in OSTK
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Conclusions
Due to entrenched, distracted, incompetent management and a captured board, OSTK has failed to produce meaningful profit or shareholder return since 2002 IPO
Company is largely wasting ~1/5th of the firms market cap, >100% of cash, on building a ridiculous, unnecessary new HQ
The new HQ should be put on hold, if not scrapped entirely, so management can focus on turning around the core business
Even if the company goes through with the new HQ, the stock is still undervalued relative to enormous growth opportunities
Opportunity in search of an activist: By engaging the board and management, an investor can push for strategic and operational change, help management refocus, improve OSTKs financial performance and stock price
Addition of new, truly independent directors with experience in e-commerce, audit, and governance will improve decision making & shareholder accountability
With management refocused on improving and growing the business, we forecast triple-digit stock price appreciation with minimal/manageable downside
2014 STONE STREET ADVISORS LLC 63PUBLIC
The opinions presented herein are solely those of Stone Street Advisors LLC. Neither Stone Street Advisors LLC nor any of its members has a position in OSTK or OSTK derivatives, nor any plans to initiate a position. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security or other financial instrument. Stone Street Advisors LLC makes no representation or warranty as to the accuracy, completeness or timeliness of the information contained herein, and disclaims all liability arising from errors or omissions contained in this presentation. This presentation is presented for informational purposes only and does not constitute investment advice. Stone Street Advisors LLC is not a an Investment Advisor.
2014 STONE STREET ADVISORS LLC
Disclosure
64PUBLIC
Jordan S. Terry
Founder & Managing Director
Stone Street Advisors LLC
jordan.terry@stonestreetadvisors.com
2014 STONE STREET ADVISORS LLC
Contact Information
65PUBLIC
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