Overstock.com, Inc Financial Results Presentation. February 7, 2006

Transcription

1 Overstock.com, Inc Financial Results Presentation February 7, 2006

2 Safe Harbor The following information contains, or may be deemed to contain, forward-looking statements (as defined in the U.S. Private Securities Litigation Reform Act of 1995). By their nature, forward-looking statements involve risk and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The future results may vary from the results expressed in, or implied by, the following forward-looking statements, possibly to a material degree. For a discussion of some of the important factors that could cause the results to differ from those expressed in, or implied by, the following forward-looking statements, and for definition of the non-gaap term Gross Bookings, please refer to documents that the Company files with the SEC, including but not limited to, its most recent reports on forms 10- K, 10-Q, 8-K and S-1. The Company undertakes no obligation to update or revise any forward-looking statements. 2

3 Concerns and Questions 1) Gross Margins: a) What is the plan for gross margins? How will you get there b) Within logistics and merchandising, where do you see room for improvement? 2) Technology Spend a) Can you tell us what the components are to tech expense? What can we expect in 2006? b) What is happening with the ERP implementation? Could there be any future overhangs from that issue in 2006? c) Analytics: Propeller, TCRM, site design, etc. update d) CapEx for 2006? 3) Growth: a) It appears that there has been a change in the company s strategy to grow at any cost to one that is now focused on generating profitability? b) What is the plan for revenue growth? c) Why was there such a rapid deceleration in growth from the beginning of 05 to present? What has caused this? d) What is the breakeven volume given current growth rates and your estimates for GM and OpEx? 4) Liquidity: a) You had $72 mil in available cash at 12/31 and $104 mil in A/P with purchase obligations of $37 mil? What is the current cash situation now? Do you need to raise funds this year? b) Inventories were higher at the end of Q4 then going into it? How much of this was due to slower growth? Bad inventory? Competition taking sales, or something else? 5) Marketing: a) What are conversion rates and what do you see happening with them in 2006? b) What about marketing efficiency this year? c) Can you talk about the online advertising space. What do you see happening there in 06? How about offline? d) Is the emphasis moving away from new customer growth to repeat? e) What is our CPA? f) Free shipping in December? Why so much? g) Competition during the holidays? 3

4 Outline The bad and the ugly The good 3. Looking forward 4. Jihad 4

5 Technology Spend 10% Cumulative technology expense / revenue for Overstock and Amazon 8% 7.8% 7.0% 6% Amazon 6.1% 5.4% 5.4% 4% 2% 0% Source: Company Data, Amazon.com 5

6 Technology Spend 10% Cumulative technology expense / revenue for Overstock and Amazon 8% 7.8% 7.0% 6% Amazon 6.1% 5.4% 5.4% 4% 2% 2.0% Overstock 1.5% 1.1% 1.3% 0% Source: Company Data, Amazon.com 6

7 Technology Spend 10% Cumulative technology expense / revenue for Overstock and Amazon 8% 7.8% 7.0% 6% Amazon 6.1% 5.4% 5.4% 4% 2% 2.0% Overstock 1.5% 1.1% 1.3% 2.2% 0% Source: Company Data, Amazon.com 7

8 2004 vs 2005 Conversion* January - August Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 8

9 2004 vs 2005 Conversion* January - October Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 9

10 2004 vs 2005 Conversion* January - December lost revenue of $100 - $150 million Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 10

11 Market Share 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% Overstock as % of US ecommerce 1.6% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Source: US Census Bureau, Company Data. Q4 05 ecommerce value estimated at 20% Y/Y growth. 11

12 Market Share 1.2% 1.0% Overstock as % of US ecommerce (TTM) 1.05% 0.8% 0.6% 0.4% 0.2% 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Source: US Census Bureau, Company Data. Q4 05 ecommerce value estimated at 20% Y/Y growth. 12

13 Market Share 8% 7% 6% 5% 4% 3% 7.0% Overstock and Amazon as % of US ecommerce (TTM) Amazon 5.5% 2% 1% 0% 0.2% Overstock Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1.0% Source: US Census Bureau, Company Data, Amazon.com. Q4 05 ecommerce value estimated at 20% Y/Y growth. 13

14 Growth Multiple Amazon (North America) revenue and gross profit multiple to Overstock Gross Profit Multiple (X) Revenue Note: Amazon (North America) gross profit adjusted to include estimated fulfillment expense 14

15 Gross Margins 16% 15.0% 14% 13.3% 12% 10% 9.2% 8% 6% 4% 2% 0%

16 Gross Margins 30% 25% 23.9% 23.1% 24.0% 20% Amazon (reported) 15% 14.5% 14.5% 15.2% 10% Amazon (with fulfillment) 5% 0%

17 Gross Margins 30% Amazon (reported) 25% 23.9% 23.1% 24.0% 20% 15% 10% 5% Amazon (with fulfillment) 14.5% 14.5% 13.3% 9.2% Overstock 15.2% 15.0% 0% Note: 2003 gross margins adjusted to current accounting definitions 17

18 Brand Recognition Unprompted name recognition for Overstock, Amazon and ebay by all consumers 80% 70% 68% 60% 50% 40% 30% 55% 43% ebay Amazon 44% 29% 20% 10% 0% 4% Overstock 6/03 12/03 6/04 12/04 6/05 12/05 Source: Abacus Associates; Survey of all consumers 18

19 Brand Recognition Prompted name recognition for Overstock by web shoppers 80% 70% 70% 60% 50% 40% 47% Overstock 30% 20% 10% 0% 6/04 9/04 12/04 3/05 6/05 9/05 12/05 Source: Abacus Associates; Survey of web shoppers only 19

20 2006 Operations For the first 6-9 months of the year: Harden systems. Reduce sales & marketing spend. Grow at Industry rate. 20

21 2006 Cash Situation For the first 6-9 months of the year: Losses will approximate depreciation and amortization expense. Reduction in inventory will offset capital expenditures. Inventory line of $40-50 million is available to build inventory for Q4 if necessary. 21

22 Jihad (ji häd ), n. 1. any vigorous crusade for an idea or principle. 22

23 Concerns and Questions 1) Gross Margins: a) What is the plan for gross margins? How will you get there b) Within logistics and merchandising, where do you see room for improvement? 2) Technology Spend a) Can you tell us what the components are to tech expense? What can we expect in 2006? b) What is happening with the ERP implementation? Could there be any future overhangs from that issue in 2006? c) Analytics: Propeller, TCRM, site design, etc. update d) CapEx for 2006? 3) Growth: a) It appears that there has been a change in the company s strategy to grow at any cost to one that is now focused on generating profitability? b) What is the plan for revenue growth? c) Why was there such a rapid deceleration in growth from the beginning of 05 to present? What has caused this? d) What is the breakeven volume given current growth rates and your estimates for GM and OpEx? 4) Liquidity: a) You had $72 mil in available cash at 12/31 and $104 mil in A/P with purchase obligations of $37 mil? What is the current cash situation now? Do you need to raise funds this year? b) Inventories were higher at the end of Q4 then going into it? How much of this was due to slower growth? Bad inventory? Competition taking sales, or something else? 5) Marketing: a) What are conversion rates and what do you see happening with them in 2006? b) What about marketing efficiency this year? c) Can you talk about the online advertising space. What do you see happening there in 06? How about offline? d) Is the emphasis moving away from new customer growth to repeat? e) What is our CPA? f) Free shipping in December? Why so much? g) Competition during the holidays? 23

24 Q & A