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Overstock.com overflops in Q3

Stock heads toward the 'Big 0'

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Overstock.com's collapse went into overdrive this week. The company posted a drop in third quarter revenue and a larger loss. In retaliation, investors clobbered Overstock, sending its shares down 17 per cent on Monday to their lowest point in three years.

At about this time last year, we warned you that such a future might be in store - pardon the pun - for the online retailer. Your reporter had a horrendous experience with the company and then discovered that such experiences were common. Overstock's customer support staff also wrote to us, saying that the company's call centers were hopeless.

Rather than looking at my complaints with concern, Overstock's CEO Patrick Byrne repeatedly described your reporter in unkind terms both in e-mails and on financial message boards. That seemed a bizarre way for a CEO to handle a customer service issue.

As it turns out, Byrne specializes in the bizarre. He's spent months blaming a secret gang of short sellers for Overstock's woes. At least, that's who he was blaming until Monday.

"This year we have been fixing business processes and systems integral to serving our customers," Byrne wrote in a note to investors.

"The IT problem that developed last September, which we have discussed at length in prior communications, has had lingering effects that ran well into this year. In fact, while we viewed it internally as a 2005 Q4 - early 2006 Q1 problem (which is what it was technologically), I see now that in terms of affecting customer behavior it was more of a 2005 December - 2006 April problem. It has taken an enormous amount of work to recover, but our operations and infrastructure are now healthy and strong."

And so, after denying evidence to the contrary, Overstock has admitted that its customer service systems and infrastructure needed a lot of work and that they had a negative, long-term impact on consumers. Overstock has moved to fix the problems, but it looks like the work may have been done too late.

Overstock's Q3 revenue dipped to $159m in the third quarter - a 6 per cent fall and the first year-over-year revenue slip in company history. Meanwhile, Overstock's net loss expanded to $25m from $12m last year.

"The Q3 financial results were poor," Byrne said.

Shares of Overstock were down another 5 per cent today to $13.84, well off the company's 52-week high of $43.40. ®

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