The Deepening Mystery of “Gross Profit”: Kudlow & Cramer – 23 April 2004

Interview: Patrick Byrne, chairman and CEO of, discusses the company’s revenues and earnings
836 words
23 April 2004
CNBC: Kudlow & Cramer English (c) Copyright 2004, CNBC, Inc. All Rights Reserved.

LARRY KUDLOW, co-host: reduced losses with 181 percent increase in sales. So what’s next? We’ve got Overstock CEO Patrick Byrne.

Patrick, welcome back to K&C. You had pretty good numbers. Your stock is on a nice little run here. So I congratulate you for that. But once again, once again, you are confusing the heck out of me and everybody else with your arguments about gross vs. GAAP. I’m not really sure why you continue to do this and what it is you’re trying to hide.

Mr. PATRICK BYRNE ( Chairman & CEO): Well, thank you for having me back, Mr. Cramer.

KUDLOW: No, I’m Kudlow, actually.

Mr. BYRNE: Oh, I’m sorry.


KUDLOW: And this is Michelle.

Mr. BYRNE: You know, I can’t see either of you, so I just…

KUDLOW: OK, fair enough.

Mr. BYRNE: What…

KUDLOW: But what about–you are the only CEO who publishes this confusing issue about gross vs. GAAP revenues and earnings. Why do you do it, sir?

Mr. BYRNE: No good deed goes unpunished. I’ve tried to explain the economics of our business. I wrote a three-page letter this time. Last quarter, I wrote a 12-page letter. Maybe it is confusing. I thought I’m trying to do a good thing. And really, you know, the letters that the shareholders see are pretty much the letters that the board see. It’s so they can really understand the business. But I can understand in today’s age why people take that for there must be smoke and mirrors going on. But so if you just want to look at GAAP numbers, we’ll just look at GAAP numbers.

CARUSO-CABRERA: And let’s talk about those GAAP numbers. Are you ever going to make any money here?

Mr. BYRNE: I think so, yes.

CARUSO-CABRERA: You’re not profitable yet. When do you expect to be profitable?

Mr. BYRNE: Well, we’ve been there for–been there, slipped back under. We’re minus 2.4 percent at this point. For every dollar we sell, we lose minus 2.4 cents. Put it this way. I can think of one other company, Amazon, that grew to half a billion dollars in sales in five years. This is our fifth year. We launched our site October ’99, and I think we’ll do half a billion dollars this year. I think they’re the only other company that got there. I think we’ll–you know, they got there–the year they got there, they lost a billion and a half. We’ll get there this year. Yeah, we’ll make a million, lose a million. We’ll be within a half a percent of break-even.

KUDLOW: Well, yeah. You know, your business plan, you’re kind of the low-end eBay, if you will, or Amazon. But you got every right to do it, and it looks like you’re having some success. But what is it that you’re hiding on this? In other words, normal GAAP earnings takes revenues less expenses, brings down certain one-time charges, and that gets us to the profitable bottom line. Are you trying to say to us you’re not making as much in sales revenue or that you will have a better future? I mean, it’s utterly confusing to me.

Mr. BYRNE: Well, first of all, I’m all about GAAP. I have been so critical of the companies that do–I don’t believe in one-time charges; I don’t believe in EBITDA. If somebody talks EBITDA, put your hand on your wallet; they’re a crook.

KUDLOW: So if you say GAAP profit–GAAP gross profit is up 83 percent, isn’t that misleading, this idea of GAAP gross profit? As Michelle said, you’re not scoring profits yet. You may next month, but you’re not yet.

Mr. BYRNE: Larry, that’s…

KUDLOW: Quick answer.

Mr. BYRNE: …that’s…

KUDLOW: Quick answer.

Mr. BYRNE: Quick answer is that’s a silly question. GAAP has a concept called revenue, a concept called gross profit, a concept called net profit. Those are GAAP–a basic accounting course teaches that.

KUDLOW: But every company of the 5,000 reporters have net, not gross. Anyway…

CARUSO-CABRERA: You know what? We’ve got to go.

Mr. BYRNE: Well, we give them that, too.

KUDLOW: …I don’t understand it. I don’t understand it. Anyway, thank you for coming back.



CARUSO-CABRERA: Despite all that.

Mr. BYRNE: Thanks.

CARUSO-CABRERA: All right. Thank you very much, sir. Coming up next, the K&C and my view on today’s financial headlines. And later, we talk trucking e-commerce and outsourcing.

See it here.

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