Reflections on Overstock Q3 Quarterly Earnings

Originally posted on 11/14/2019 by Patrick Byrne

A number of people have asked for comment. I listened to the full recording. I will be brief.

That keiretsu of blockchain companies is doing things of historic significance, which will translate into money if and when the blockchain revolution transpires. If you don’t believe in the blockchain revolution, this is not for you. But if you do, this network is far ahead of its time.

I applaud Jonathan’s gutsy call of an investment in Evernym. That firm has a most sophisticated answer regarding identity, and it is the leader in the Self-Soverign identity space. In truth, that is the one layer of the “tech stack for humanity” that was missing. That investment completes the stack.

It looks like PeerNova pulled it off.

tZERO and its progress is one of the most significant blockchain events on earth. Here is why it is significant. John Kenneth Galbraith spoke of “the bezzle”. If one could freeze time and count up all that was there, and all that the financial system told people was there, one would find a large difference. That difference was, “the bezzle”, in that it was the amount that had been embezzled from society. Such is the nature of financialization (and, as long-term readers will know, in my view the settlement system at the core of it all is where the big leak is). When values are represented with blockchain security tokens, and ownership gets subsumed into a unified field of tokenization, the commanding heights of that world will be the place that people meet and exchange those tokens. For that reason, I have in the past shown a calculation showing that valuation of the exchanges on which security tokens trade could approach a trillion dollars in time. tZERO staked that spot out, and has marched its road-map towards that spot in an open, transparent way. Did I take a bar-no expense approach in pursuing this trillion dollar real estate? Yes: the metric by which tZERO should be measured is speed-to-market, and it has won that race.

With Saum, quarter after quarter is four yards and a cloud of dust. Step back and think about the progress made here.

Retail: it has been a surprise to me how the estimates for the year changed. I learned a lot in Dave’s discussion on the earnings call. I still think it is going to still looks like its bottom line will be ≈ $100 million better than previous year (I’m not near any numbers, so I am going by gut). Does that mean it should make another $30-40 million improvement next year in the bottom line? That feels right to me (and will to anyone who works inside organizations). And there are some especially large projects that have momentum. On the other hand, there is risk of secular challenges in the housing market, which drives a lot of this industry. Whatever your estimate of next year’s improvement in Retail bottom line (assuming this year’s improvement over last is ≈ $100 million), that estimate should also be your estimate of how much cash the Retail business should spit off next year. The two happen to be the same(-ish).

That means that Retail subsidizes most or all of the blockchain operating cash needs next year. And if the blockchain firms start drawing their own capital, the blockchain firm’s operating needs drop even further. Or cash moves back to the mother-ship.

Jonathan and the team are ready and robust. Yes, these last few months were tough for everyone. Yes, some friendships have been broken. That is a different matter. They are up to handling this.

Some are going to say, “Then why’d you sell, Byrne?” I wonder if, as people read through these articles I have been putting up for three months, it has become obvious to them. With everything that visitors to this blog now understand, with everything I have made clear, is it not obvious that I had to leave? Yes, I think the way it was handled was all too typical, but it surely must be starting to click for people in a way it would not have in August. Yes, the fact that a ruse was employed, and I was told the board was concerned about “the optics” of any association with me, led me to liquidate my entire position. Other times I have done something on automatic, simply on principle, it has worked out badly for me (e.g., my sale this May at a trading lowpoint, simply because months earlier I had pledged to the board that I would be selling on those dates). This time it worked out for me better than some, but it could just have easily gone against me. When I chose that period weeks in advance, I thought it probably would work out badly for me, in that I would not be maximizing price. And I hardly top-ticked it. Anyway, it worked out for me better than for some in the general market, worse than others. Remember also, I was ousted. The timing was not mine.

I am sorry for the people for whom it has not worked out. Over the last three months I have written a fair bit simply to clear up mysteries, as that is all that it remains mine to do for you. I am sorry that that is all I can do.

However, all of that is unrelated to one point: you own a stable of tremendous blockchain assets. And you have a retail company that, with one more good year of improvement, just a fraction of this year’s, will be able to fund them internally. They have a new filing, and as a last resort, they have another year’s worth of capital from me. No one has rolled with the punches like Team Overstock. And the tech stack for humanity is finally complete.