Overstock.com (US:OSTK) emerged as a market frontrunner on Thursday, as shares saw a sharp 17.3% increase after confirmation of its successful bid to purchase a portion of bankrupt Bed Bath & Beyond's (US:BBBYQ) intellectual property and assets.
In the aftermath of the demise of BBBYQ, Overstock.com made a strategic move to secure key assets including intellectual property rights, business data, and rights to mobile applications. The $21.5 million transaction is anticipated to receive final approval in the U.S. Bankruptcy Court of New Jersey on June 27.
Although Bed Bath & Beyond's physical stores and secondary concepts are not part of the deal, other valuable assets -- like mailing lists, registries, and customer data -- could provide Overstock.com with powerful tools for targeted customer acquisition, sparking excitement among investors.
Retail industry insiders view this acquisition as a potentially lucrative opportunity for Overstock.com. Bed Bath & Beyond, previously one of the largest U.S. home furnishing retailers, has seen its market share decline significantly from 8% in 2016 to a meager 3% last year, just as other competitors, including Wayfair (US:W) have grabbed at the business.
Overstock.com's purchase of key assets is not only timely but could also help to reverse the downward trajectory of its own revenue, especially given the recent uptick in online furnishings sales.
Institutions Could Return
Data available on the Fintel platform highlighted OSTK stock’s declining institutional interest during the most recent quarter. The actual number of institutions on the register declined by 6%, to a total of 385, of which 370 are long only. The average portfolio allocation increased by 0.20%, likely boosted by the rising share price during the period.
The Fintel Fund Sentiment quant model gives OSTK a score of 44.73, ranking it in the bottom half of the 36,054 stocks analyzed.
The total level of call and put options used by these institutions over the last 10 years illustrates options sentiment. The chart below show the share’s bullish and bearish activity which, since 2022, has been bearish.
Analysts predict positive financial implications for Overstock.com, stemming from the acquisition of Bed Bath & Beyond's digital assets. Some have forecast that the deal could potentially increase the former’s sales by more than $150 million in 2024, based on a set of conservative estimates.
Using these projections and assuming a rise in marketing costs as Overstock aims to convert Bed Bath & Beyond customers, analysts think the deal could add more than $10 million to EBITDA profits next year.
Fintel’s consensus target of $33.58 suggests analysts think the stock could rise more than 55% over the next year.
The chart below shows the dispersion of ‘strong buy’, ‘buy’ and ‘hold’ ratings across the market. Most analysts have a ‘neutral’ recommendation on the stock, however this could potentially change once more clarity is provided about how the Bed Bath digital assets will be used.
Growth via Diversification
Overstock.com's steady growth since its IPO in May 2002 has largely been driven by diversification, including managing inventory supply for other retailers and producing handmade goods in developing nations.
The acquisition of Bed Bath & Beyond's digital assets marks a significant stride in Overstock's evolution, leveraging digital commerce's transformative power.
In the face of relentless competitive pressure from larger rivals like Wayfair, the online retailer is hopeful this strategic acquisition will bolster its market position. The Utah-based company, now poised to take the reins of Bed Bath & Beyond's digital assets, offers a glimmer of hope for the embattled brand.
As the retail sector continues to transform, Bed Bath & Beyond could potentially stage a revival under Overstock.com's stewardship, indicating that even in bankruptcy, there can be a silver lining.
While the full implications of this acquisition remain to be seen, one thing is certain: Overstock.com's strategic play has turned heads in the retail industry, and all eyes are now on the online retailer as it embarks on this new chapter.
This story originally appeared on Fintel.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.