Overstock IPO a Plain Vanilla Affair

If this were 1999, last week’s Overstock.com IPO would have been considered an outright disaster. The online discount e-tailer’s stock moved up a whopping 2 cents and has since returned to its US$13 offering price.

But this isn’t 1999, and there are many different ways to slice this initial public offering. From most perspectives, it’s a qualified success. It’s also go-to-sleep boring. Worst of all, it just might be contagious.

Green Is Good

First, there’s Overstock’s perspective. The e-tailer raised just under $40 million through the offering. From the company’s vantage point, what happened to the stock after it went public almost doesn’t matter.

Sure, a strong stock would make it easier for the company to raise additional capital down the road — and judging by its losses, it will need to do so eventually. But that is a problem to be addressed later. Right now, Overstock has $40 million it didn’t have a week ago.

So the flatlined IPO isn’t a disaster — at least, not financially. The company can work with the new capital and hope that by the time it needs more, either it will be profitable or the stock market will have changed its tone completely.

A Yawn-a-Thon

From a public relations slant, the story is a bit different.

Someday, someone with know-how will be able to quantify the boost that a strong IPO provides. They might start by looking at PayPal, which has always relied on word-of-mouth to grow its membership base.

The publicity that stemmed from being the first successful Internet IPO in recent memory had to be as valuable as a national ad campaign — but it cost PayPal nothing.

For Overstock, there will be none of that fanfare. Nothing is less sexy than an IPO that just sits there. Less than a week after the company went public, a stock-tracking firm said there were actually no trades in Overstock shares during a full trading day. Wake me when it’s over.

Nosey Neighbors

Of course, Overstock now has a few million eyes looking over its shoulders, awaiting quarterly earnings reports and ready to react to whatever they contain. That is a headache, to be sure, but one that the e-tailer probably figures is worth $40 million.

Investors have a different perspective, of course. But they should have known what they were getting into when they bought into Overstock’s unorthodox Open IPO. The Open IPO appears to have done exactly what it was supposed to do — eliminate the first-day spikes that occur when underwriters price shares for selected investors, who in turn reap substantial gains when the stock opens significantly higher.

Overstock investors did not benefit from any big gains, unless they dealt in sufficiently heavy volume to multiply the 2 cents into something significant. So investors now have a strange bird on their hands: an IPO stock that is actually a long-term play. And a highly speculative one at that.

Reading the Bottom Line

Which brings attention back to the consumer and the marketplace for overstocked and closeout goods online. Does the Overstock IPO change anything in that arena?

Not at all. Overstock still deals in a very crowded sector. Any company that already has an online store can easily and inexpensively set up a discount/closeout wing. EBay wants in, which is bad news for any competitor, and real-world closeout companies seem to have an advantage on the supply side, as they have long-standing relationships with retailers.

One thing is certain: It won’t take long to figure out whether the Overstock IPO experiment worked or not. Unlike the blockbuster offerings of earlier days, this IPO produced just enough capital to give Overstock a little time to get its feet underneath it.

If the company can leverage its newfound cash to reach profitability, then modest, quiet little IPOs may become a trend — a new way for e-commerce companies to thumb their noses at reluctant venture capitalists and buy themselves another few months on the dot-com treadmill.

What do you think? Let’s talk about it.