Overstock saw its overall revenue increase in the second quarter but a wider net loss, pointing to the impact of its blockchain technology investments and changes in Google’s search engine algorithms for the retail business.
Total net revenue for the second quarter of 2017 ended June 30 was $432 million versus $418.5 million in the second quarter of 2016, a 3% increase. The growth in revenue was primarily due to a 4% increase in average order size, coupled with a 2% increase in orders, the company said. These increases were partially offset by increased promotional activities, including coupons and site sales. The average order size has increased in recent years due primarily to a sales mix shift into home and garden products, the company said. Net loss for the quarter was $7.5 million versus a loss of $904,000 in last year’s second quarter.
“The loss on the Medici blockchain side of the business was expected, as we are incurring significant costs building out the most leading edge applications in blockchain. The loss on the retail side was unpleasant, but not as heart-stopping as it might appear. In truth, almost all aspects of our retail business are running well. Our sourcing is expanding, we are up to three million products and have a clear path to having five to ten times that many, our logistics operations are efficient, our site technology is intelligent and is becoming more so through our work in machine learning and our branding efforts are showing better responsiveness,” said Patrick Byrne, CEO, Overstock.
In the second quarter, the company said it experienced a slowing of overall revenue growth in part to changes that Google has made in its natural search engine algorithms. While it works to adapt to Google’s changes, the company has increased its emphasis on other marketing channels, such as sponsored search, which has generated revenue growth but with higher marketing expenses. The company also experienced slower email channel revenue growth than expected as it implemented a new e-mail marketing platform.
Byrne continued, “The one great exception to all this is search engine optimization. We are traditionally quite good at SEO, and even can be said to punch above our weight on that score. As a result, a large percentage of our traffic is dependent upon Google. In May, Google began its annual algorithm adjustments, but this year the volatility introduced and the length of the tuning has been significantly greater than any previous year of which we are aware. This created tremendous headwind for our business from May through the summer thus far. We have reorganized a large number of resources around addressing this current challenge, as well as preventing it from ever occurring again. In recent weeks we believe that, once again, we have found a way through it, with a variety of innovations and technical improvements, so we are encouraged that we will find ourselves back on the path to market-like growth with profitability quite soon.”