Overstock vs Amazon Stock: Which Is Best?

Amazon.com, Inc. (NASDAQ:AMZN) is an ecommerce giant often credited with killing brick-and-mortar retail. From Borders to Sears and J. Crew, the company wreaked havoc on any business slow to shift towards online sales.

But Overstock.com Inc (NASDAQ:OSTK) is building buzz as the first real competitor to this online behemoth.

This has investors wondering which is the best bet between Overstock vs Amazon stock?

Amazon Prime has nearly 150 million paying members, and that’s a rarity in retail. However, those customers are increasingly finding knockoffs and bad-quality merchandise through the retailer.

In the past year when there were retail supply shortages, it became clear there’s little in place to stop third-party resellers from price gouging. It became such a big problem that consumer watchdog agencies stepped in.

Brands like Birkenstock, Nike, Rolex, Barbour, and Asics eschew the Seattle internet retailer to build their own digital presence. In fact, that’s becoming a trend among brands looking to build their own online sales channels without paying to play with Amazon.

If you’d like to see the chaos for yourself, Google “Lululemon Amazon” and notice that it autofills “Lululemon Amazon Dupe.”

Investors must check the receipts to see if Overstock is indeed a worthy competitor for the retail side of Amazon.

Is Overstock A Good Buy?

Overstock.com is a Midvale, Utah-based online retailer founded by Patrick Byrne in 1999. It struggled for nearly 20 years to get past its $13.00 2002 IPO price, but the 2020 pandemic gave the company two lucky breaks.

The first was in its launch of a cryptocurrency token and marketplace, called tZERO. It markets itself as the premier marketplace to trade digital private securities. However, so far the only companies it has listed are Overstock (OSTKO), tZERO (TZROP), and a Utah-based web design company called Aspen Digital (ASPD).

But Overstock is heavily invested in blockchain and cryptocurrency, both of which shot to record highs in 2020 that maintained well into 2021.

Fintech is a big business, and this makes Overstock and Cathie Woods’ Ark Investment Fintech ETF among the few available crypto plays on Wall Street.

The company also got an increase in online sales as a surge of buyers transitioned online over the past year. It held over $595 million in cash and equivalents, heading into the 2020 fourth quarter. Net revenue for the quarter was $731.651 million, which gave it over $23.39 million of income.

Its $0.50 earnings per share for that quarter and $1.00 earnings per share for the nine months ending September 30 represent big year-over-year increases. And it’s not just the low-cost merchandise driving this.

In fact, tZERO accounts for about 3.5 percent of the company’s revenues. That signals a shift to blockchain that could greatly benefit Overstock’s investors.

Of course, the path won’t be smooth.

Overstock Faces A Bunch Of Hurdles

Overstock is on a high, but it isn’t the first time it went up and down over the years. Much of its intrinsic value is due to future growth expectations, which may never happen. While Amazon grew to over $1 trillion, Overstock grew in the same timeframe into a $4 billion company.

And Overstock could suffer from similar brick-and-mortar businesses like Ross, TJX, and Burlington focusing more online.

The company isn’t unique in its value proposition. Even companies like Wish are soaring these days, but the surge in online retail could end poorly if executives rest on their laurels. Never forget what happened to Blockbuster when Netflix disrupted the movie industry.

Overstock has a much smaller footprint than Amazon, and it’s not guaranteed to grow. It’s already trading nearly 400x more than earnings, and that’s compared to Amazon’s 80x multiple. That makes the company more of a Tesla than an Amazon on the street when it comes to financial multiples.

Failing retailers like GameStop and Express got big gains from the January 2021 Reddit short squeeze rally. But if Overstock fails to continue its current growth trajectory, it’s a prime target for hedge fund shorts.

Amazon Is Not “Just” A Retail Marketplace

Amazon didn’t make its fortune “just” via online retail – it grew profits by providing cloud-based services and upselling subscriptions. The company continues dominating new markets and growing its supply chain to become unstoppable.

Overstock stayed in line with retailers, and its biggest bet is on blockchain. The blockchain and cryptocurrency industries remain speculative at this point. Although Bitcoin and altcoins like Ethereum are doing well (s/o DOGE hodlers), the underlying businesses are as yet unproven.

The biggest problem isn’t whether blockchain is or isn’t useful – it’s that any competent tech company can develop its own. Facebook proved that with its long-delayed Libra cryptocurrency launch. Tokens and coins are hyped online but the companies rarely generate revenue.

Still due to its size, Overstock has bigger percentage growth potential than Amazon. It could continue to leverage its existing base into a bigger company, even acquiring other smaller tech plays. Or it could find a way to takeover retail while new Amazon CEO Andy Jassy focuses on the cloud.

Amazon Vs Overstock: Which Stock Is Best?

Amazon and Overstock started during the late 1990s dotcom bubble, and both survived the era. However, one grew into a trillion-dollar tech juggernaut while the other remained a billion-dollar online retailer. As time went on, sentiment towards Amazon as a place to shop is waning, and that’s a chance for Overstock to pounce on.

But it may remain a niche – it’s focused on speculative industries like blockchain that could go down in value over the next decade. The company doesn’t have a big technology presence and is more focused on investments.

If Overstock buys the right companies, it can position itself as a next-generation Amazon. Otherwise, it’s a pure retail play that’s got stiff competition. Similar brick-and-mortar stores that normally ignore e-commerce are jumping into the fray. This could cause growing pains for investors jumping on board now.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.