Shares of ecommerce retailer Overstock (NASDAQ: OSTK) fell as much as 19% on Tuesday as the company once again disappointed investors, this time with its third-quarter financial results. Not only did the company miss revenue and earnings estimates, but it announced a new share sale and that records had been subpoenaed by the SEC.

During the third quarter, the company lost $0.89 per share on a GAAP basis, missing estimates by 27 cents. Quarterly revenue of $347 million was $29 million short of consensus estimates and down more than 20% from a year ago.

Declines throughout the income statement came primarily from the lower top line which the company attributed to declines in marketing expenses. Sales and marketing expenses fell 38% to $34 million.

The gross margin fell only slightly, and the operating margin improved from a year ago but remains at negative 8.6% of revenue.

 

No Stranger to Controversy

Overstock’s stock price has fallen more than 90% since January 2018. The peak came shortly after the company announced it was launching a cryptocurrency platform to revolutionize the capital markets. The move, which coincided with the height of the crypto bubble was widely viewed as opportunistic.

In August this year, long-time CEO Patrick Byrne resigned after admitting to a romantic relationship with Maria Butina, a Russian who pled guilty to conspiring to act as an unregistered foreign agent in the U.S. Byrne also hinted at involvement in a deep state conspiracy. CFO Greg Iverson resigned abruptly shortly afterward without providing a reason.

During the latest earnings call, CEO Jonathan Johnson also mentioned that the SEC had subpoenaed documents relating to the company’s most recent dividend and its executive share scheme.

Ongoing controversy and the company’s frequent strategic changes have made the stock a favourite among short sellers. This has extended to co-ordinated campaigns by high profile short-sellers and resulted in several lawsuits. The company’s short interest remains above 25%.

 

Is There Light at the End of the Tunnel?

For the long-term picture to improve the company will need to prove a positive operating margin is possible.

Overstock’s crypto project, tZero, contributed $5.6 million of the company’s total revenue but generated a pre-tax loss of $14 million, or 34% of the total loss. Whether the segment ever contributes to positive cash flow remains to be seen, but either way, it will take some time.

The retail segment is improving its margins, but still burning cash. During the third quarter, free cash flow for the entire company was negative $107 million, leaving cash and equivalents of $83.5 million – hence the new $150 million share sale. It’s likely the company will need to raise more cash in the future.

Once the share sale is out of the way, the short-interest may lead to a squeeze in the near term. But,