Exploring Overstock's Discount

The feedback that I received in Salt Lake City is the polar opposite of the media's portrayal. He is greatly admired within the company for his intellect and energy. He is integrally involved in every department, from analytics to marketing to technology to distribution. People that work with him were uniformly startled, amazed and dumbfounded when I mentioned details of the media's representation of him. It doesn't square with the Patrick Byrne that they work with side by side.

One consistent theme I heard is that Byrne is fascinated with every element of the business. You might think that warehouse distribution would bore a Ph.D. The stories I heard indicate the opposite is true. A manager in analytics told me how Byrne recently helped write the algorithms for a quantitative program to facilitate purchasing decisions. Another manager told me that Byrne regularly talks to employees at all levels in an effort to glean new information.

The only criticism I could get from anybody regarding Byrne is that he is impatient when it comes to implementing operating improvements.

There is no grandiosity or pretense, or even a hint of ostentation, at headquarters. The offices are clean and simple. Several employees pointed out items (in some cases the clothes that they were wearing) that are available on Overstock's Web site. Employees have a strong passion for the brand and the company's mission. I heard Sam Walton's name mentioned several times. Frugality seems to be an obsession at the company, and Walton is held up as a role model.

What Do the Financials Say About Byrne?

The financials of Overstock and SEC filings tell you a lot about Byrne. There is no "pro forma" presentation of earnings. It's always been GAAP accounting. This is unusual for a high-growth company. Byrne also refuses to embrace EBITDA as a framework for financial presentation because he considers it misleading.