Overstock Focuses on Blockchain
On Friday, August 10, Overstock (OSTK) announced earnings and major investments into the blockchain space, calling bitcoin ”a form of sound money”. Shares increased more than 15% on the day.
Background on Overstock
Founded in 1997, overstock.com initially sold exclusively surplus and returned merchandise online, liquidating the inventories of over 18 failed companies at below-wholesale prices. The company continues to sell home decor, furniture, bedding, and other goods that are closeout merchandise, however, it also sells new merchandise.
Despite a successful history, Overstock is currently in bad shape, operating at a net loss of $45 million last year (2017) and $110 million this year. Although the company’s future as a global online retailer looks bleak, their investments in blockchain are quite promising.
Going all-in on blockchain technology
The company has a cryptocurrency unit called tZERO as well as a subsidiary named Medici Ventures that invests in blockchain companies. The main reason for Overstock’s surge in share price (increasing more than 15%) was due to their recent deal in blockchain. On Friday, the company announced an investment of almost $375 million from GSR Capital, a Hong Kong private equity firm. Under the deal, GSR Capital will invest in tZero, a subsidiary 80% owned by Overstock, and Overstock itself.
Details of GSR Capital Investment:
- $270 million investment in tZero, at a $1.5 billion valuation
- $105 million investment in Overstock
Currently, Overstock’s total market cap as a public company was about $1.1 billion at the close of trading on August 9, 2018. In other words, GSR Capital’s investment in Overstock values the company at a 36% premium to their current market value.
Overstock’s plans for the future
In a letter to shareholders, Overstock CEO Patrick Byrne hinted that the company will start spending less on its retail unit as a way to reduce the company’s overall losses.
“Given the rapidly growing value of our non-retail assets, we think shareholders are better served now by a cash-conservative strategy. I believe Overstock can focus on developing more non-traditional means of growth and profitability,”
Byrne added that the company is still looking for a buyer of the retail business, and that “discussions with potential buyers have progressed.”
For now, the company seems focused on a few hot areas of the crypto market:
- Digital Wallets – tZero will enter the digital wallet arena with a startup called Bitsy, one that promises to solve the problem around lost keys to access digital coins and potentially challenge Coinbase. Medici Ventures, a subsidiary of Overstock, owns 33% of Bitsy.
- Mobile Payments – One of Medici Ventures’ portfolio companies, bitt, is entering the mobile payment arena through a suite of software and mobile applications.
- ID Validation – The company is also entering the ID validation market with a startup called Netki, one that hopes to assist financial services, health care, and government sectors in exchanging digital assets that are in full compliance with KYC, AML, HIPAA and other standards.
However, blockchain and crypto is still far from contributing to Overstock’s overall revenue. Although the company did see a gain of $6.8 million in the quarter from cryptocurrency purchases. As of now, investors are essentially betting that tZero’s efforts in the new yet unpredictable cryptocurrency market will fare better than its aging e-commerce business. That’s quite a risky bet.
“B2B reporter – Content Manager – Contributor – Fintech – Blockchain – Cryptocurrency”
Simon Chou is a B2B reporter and content manager specializing in technology and finance. He has worked with many clients in the fintech and blockchain space. He holds investment positions in bitcoin and other large-cap cryptocurrencies, and has been reporting on cryptocurrency since 2017. Currently, Simon is the content manager for a major cryptocurrency exchange @HybridBlockHQ.