We expected an ugly print, and we got it. Revenue beat, and was less bad, down 5% vs down 19% last Q, but it bought that topline on the margin side. Gross margin was down 650bps, weakening from down 460bps last Q. Adjusted EBITDA missed -$49mm vs street -$35mm, a -13% EBITDA margin. Expectations for a profitability crash is what got us off the long last year. The question is where do we go from here. Margins are likely to get less bad in terms of rate of change, and the company is guiding to a top line acceleration in 1Q, with both easing rev and margin compares in the middle quarters of the year, and very easy margin compares in 4Q. The company is cutting SG&A costs alongside, pursuing a sale of its oversized HQ, and curbing capex. So we could definitely have a multi quarter revenue, margin, and cashflow improvement story over a TREND duration that should get the stock grinding higher. The risk is whether the company can hit the revenue targets, though the market doesn’t seem to believe the guide today, so perhaps just consistent improvement is all that is needed.
On a longer-term basis, Lemonis could do some good things here, as he is certainly motivated and incentivized to do so. This is a growthy category where Overstock.com grew despite strong competition and weak execution. The bar set over a 1 to 2 year time period is high. That’s both a risk and an opportunity; we’d say expect to see some home runs and expect to see some strikeouts. The path will not be linear, but if BYON can deliver even half of the growth it promised over the next 2-3 years with a return to profitability the stock should be a home run.
Our Elevator Pitch below has the thesis and our model summary, though our numbers could change materially as we work through the research and the 2024 business trajectory.
