Overstock Rises After Morgan Stanley Discloses Stake Ahead Of Crypto Launch
Shares of Overstock (OSTK) are rising after Morgan Stanley (MS) disclosed that it had bought an 11.4% stake in the online retailer just days before Overstock's cryptocurrency trading goes live.
MORGAN STANLEY BUYS OVERSTOCK STAKE: Morgan Stanley reported in a regulatory filing on Friday that it had purchased an 11.4% stake in Overstock, which is launching cryptocurrency trading with its tZERO subsidiary on December 18, The New York Post reported. The move comes as Wall Street banks review options to enter into the cryptocurrency space and amid Overstock developing new uses for bitcoin technology. Overstock, which has accepted bitcoin (BTC) as payment since 2014, recently began to hold 50% of bitcoins used in transactions.
TZERO LAUNCH: tZERO said on November 16 that the company's token sale, utilizing a simple agreement for future tokens will begin on December 18. The company confirmed that tokens will provide investors with token characteristics including revenue participation in the form of a distribution to be a percentage of tZERO's revenue and utility to pay for fees and services within the tZERO ecosystem.
SHORT INTEREST: Short interest in Overstock.com increased to 40.9% of the shares available to trade on November 30 from 32.4% on November 15, according to the Nasdaq Stock Exchange. A total of 7.32M shorted shares were sold as of November 30, equivalent to 2.2 days of average trading volume, which compared to 5.8M shorted shares, or 1.7 days of average volume as of the November 15.
REVIEW OF STRATEGIC ALTERNATIVES: Overstock disclosed on its November 9 earnings conference call that it engaged Guggenheim to review its strategic alternatives. The company added that it is considering a number of options, including combining with a brick-and-mortar company or recapitalizing. Overstock CEO Patrick Byrne later wrote, "I have indicated for about 18 months -- and loud-and-clear in the last earnings call -- that I hear the Gods of Economics whispering that the best model is a brick-and-click model, and that around the end of 2017 I would be working on exploring such a hybridization, which could take various forms.
RECENT ANALYST COMMENTARY: On December 1, DA Davidson analyst Tom Forte kept his Buy rating and $85 price target on Overstock.com, which he said includes a $58 valuation for the home e-commerce business based on the price that QVC (QVCA) paid for Zulily in 2015, and $27 for the Medici Ventures subsidiary. The analyst said that much like the "strategic" QVC acquisition, the purchase of Overstock.com e-commerce business could provide a lot of value to larger firms like T.J. Maxx (TJX) or Costco (COST). Forte also previously raised his price target in October following the company's announcement to move forward with plans for an initial coin offering.
SHORT-SELLER GOES LONG: Short-seller Marc Cohodes started to buy shares of Overstock in May and in June added to the stake, which he described as "not small," Bloomberg reported in October. Cohodes, who believes the stock is "ridiculously cheap," said the company's online retail business is undervalued and its blockchain unit may bring in large stock gains. Cohodes cited the potential of Overstock's tZERO saying tZERO's electronic blockchain market for securities lending could bolster transparency. "I know a thing or two about stock loan, and I think this product is tremendous," he said. "If this thing takes off, the company is going to sell at a whole lot more than a $700M market cap. The stock will go apoplectic."
PRICE ACTION: Overstock rose nearly 4%, or $2.15, to 57.20 in morning trading.