Overstock.com (NASDAQ:OSTK) Is A Three-Pronged Opportunity In Digitization

Overstock.com Is Firing On All Cylinders

Overstock.com (NASDAQ:OSTK) is an interesting story. The company, a leader in eCommerce/home furnishings, has suffered from market malaise for years and its foray into cryptocurrency didn’t really help. At least not then. But this is now. Now the company is riding the same tidal wave of growth as other digitally-focused eCommerce retailers and benefiting from multiple trends.

The two most important are the shift to eCommerce and home improvement sparked by the pandemic but those are not the only trends. The company not only sells home furnishings on the Internet it has offerings in the platform-as-a-service category, fintech, and blockchain/cryptocurrency.

"In our view, Overstock is benefiting from external and internal factors that are driving an acceleration in revenue growth and market share gains. The ongoing secular share shift towards digital commerce has accelerated this year, and the home category is benefiting from consumer nesting; we anticipate this will continue,” says Needham

Overstock.com’s 2nd Quarter Results Are More Than Encouraging

Overstock.com reported a 109% YOY increase in revenue for the 2nd quarter which is saying a lot. As an online retailer, it only had digital revenues in previous years and others in similar positions did not post triple-digit gains. High double-digit gains yes, but not triple-digit.

Strength was noted in all segments with particular emphasis on the core business. The most important factor is earnings Earnings beat consensus by over a dollar and surprised the market with a profit. The analysts have been upping their 3rd quarter targets in the meantime but the targets are still to low, and the consensus for next year is virtually unchanged.

"The number of new customers more than tripled year over year. Importantly, our customers are buying our core products—home furnishings—from the safety of their homes as part of the country's new normal," said CEO Jonathan Johnson.

Overstock.com’s Investment In Fintech Is Paying Off

The blockchain portion of the business is also expanding at an accelerated clip. tZero ATS reported record volumes and user growth across all metrics. The total number of digitized assets including cryptocurrencies topped 2.3 million units and $22 million in value while the user base grew by 11%. Looking forward, this segment should see revenue growth accelerate further with the launch of tZero Markets later this year. tZero Markets is a retail-oriented brokerage for digitized securities.

"Through tZERO Markets, we will establish a direct relationship with our customers, while also offering a streamlined experience for onboarding and trading digital securities," says tZERO CEO Saum Noursalehi.

The Technical Outlook: Overstock.com’s Retracement Could Be Over

Overstock.com shares entered a steady, persistent sell-off following the 2Q release but that shouldn’t be surprising. The stock was up from a low of $2.57 to a high of $128.32 for a gain of nearly 5000%, it was time for lucky investors to take their profits. Now the stock appears to be in consolidation but the question is, which way will price action go from here? The price pattern looks like a bearish triangle/flag continuation but I’m not sure downward momentum will hold up. Price action is also showing support at a key retracement level with bearish momentum receding and stochastic pointing higher. In the near-term, price action may retest support the $62 level. If support is confirmed the odds of a full reversal are high.