Sales and marketing expenses to gain clients surged 79 percent in the second quarter, outpacing a 27 percent gain in revenue, Overstock.com said Friday. The online seller added more than a half million customers, while the average cost to get each shopper rose to $27.61.
Overstock.com spends about 7 percent of revenue on sales and marketing, compared with about 2 percent at Amazon.com Inc. and 3 percent at EBay Inc., said Scott Devitt, an analyst with Stifel Nicolaus & Co.
''Revenue was actually strong, but the company is beginning to spend up to acquire customers,'' Devitt said. ''They are early warning signals, as you pay up for customers, of slowing growth.'' The analyst advised clients in a note Friday to sell shares, dropping the ''hold'' rating he has held since 2007.
Sales climbed to $188.8 million, beating the average estimate of $180.7 million from three analysts surveyed by Bloomberg News. Overstock.com said it had 1.16 million customers in the quarter, according to the Web site.
Overstock.com plunged $11.39, or 41 percent, to $16.31 in Nasdaq Stock Market composite trading, the largest one-day decline since the Utah-based company sold shares to the public in May 2002. The stock climbed 5 percent this year. In December 2004, it reached a high of $72.
Revenue growth may drop to the ''low-to-mid-teens'' on a percentage basis by next year, Devitt said.
Costs to get new customers will fall in the current quarter because a sales program planned to be completed in a year or two was compressed into six months, Chief Executive Patrick Byrne said on a conference call.
The net loss in the second quarter narrowed to $6.46 million, or 28 cents a share, from $13.8 million, or 58 cents, a year earlier, Overstock.com said. Domenic LaCava, a Boston-based analyst with Canaccord Adams Inc., said he had predicted 25 cents, while the average projection was 28 cents.
''Even though it's in line, it's still a very negative number,'' LaCava said. ''The company doesn't look like it's heading toward profitability, and it's never been profitable.''
Overstock.com has posted a loss every year since at least 1999, according to data compiled by Bloomberg. Among five analysts who cover the online seller and are tracked by Bloomberg, only one recommends holding the shares.
The company may begin to make a profit on operating income as early as the fourth quarter, David Chidester, Overstock.com senior vice president of finance, said on the call.
Operating earnings, which exclude interest expenses and discontinued divisions, may range this year from a $12 million loss to profit of $10 million, Byrne said. Three analysts surveyed expect an average operating loss of $13 million.
