Needham analyst Anna Andreeva downgraded Overstock.com OSTKfrom Buy to Hold and removed the $30 price target.
The analyst said through 3Q22, home furnishings industry (using U.S. Census data) grew 2%, and November further decelerated to -2%.
Overstock outgrew Wayfair IncW or seven consecutive quarters (1Q20-4Q21), which reversed this year.
The analyst expects Wayfair to remain on offense in ’23 as the company pushes ahead to restore profitability and as supplier inventories remain elevated until at least 1H23.
With active customer base ~1/3 that of Wayfair, the analyst thinks Overstock gets lost in the aggressive promotional tenor of a larger competitor.
The analyst still expects gross margin upside in ’23 as OSTK yields operational efficiencies–Sales & Marketing likely doesn’t have much opportunity given new influencer campaigns under the new CMO.
OSTK has a stellar balance sheet with $9 in cash/share (~1/2 of market cap) and there should be some optionality from Tzero in the longer term–although the analyst thinks valuation could contract in absence of top line recovery.
In the 3 years pre-pandemic, OSTK sales declined in high-single-digit on average, with pandemic share gains aided by supply chain dislocation.
Now as industry oversupply likely continues into ’23, and larger competitors Amazon.Com, Inc.AMZN and especially Wayfair still promote aggressively, the analyst thinks OSTK is a share donor again.
Price Action: OSTK shares are trading lower by 1.46% at $18.60 on the last check Wednesday.
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