Overstock.com 2002 Annual Report Download - page 25

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Average customer acquisition cost represents total sales and marketing expense excluding B2B sales force compensation (including salary, bonus, commission and benefits costs)
divided by the number of new customers for the period presented.
Three Months Ended
Mar. 31,
2001
June 30,
2001
Sept. 30,
2001
Dec. 31,
2001
Mar. 31,
2002
June 30,
2002
Sept. 30,
2002
Dec. 31,
2002
(as a percentage of total revenue)
Direct revenue 86.5% 90.6% 89.9% 86.8% 83.2% 82.4% 87.2% 85.0%
Commission revenue 5.2 9.4 10.1 13.2 13.7 15.5 12.0 13.6
Warehouse revenue 8.3 — — — 3.1 2.1 0.8 1.4
Total revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold(1) 89.3 89.9 88.6 81.9 82.8 82.3 80.8 78.0
Gross profit 10.7 10.1 11.4 18.1 17.2 17.7 19.2 22.0
Operating expenses:
Sales and marketing expenses(2) 14.8 23.1 14.1 10.0 10.1 9.1 8.7 9.8
General and administrative expenses(2) 22.1 29.3 27.5 19.3 23.2 15.3 10.0 8.3
Amortization of goodwill 8.1 10.3 8.7 5.3 — — — —
Amortization of stock-based compensation 0.7 1.5 1.6 2.2 7.0 5.6 2.8 1.4
Total operating expenses 45.7 64.2 51.9 36.8 40.3 30.0 21.5 19.5
Operating income (loss) (35.0) (54.1) (40.5) (18.7) (23.1) (12.3) (2.3) 2.5
Interest income 0.8 4.3 0.3 0.3 0.2 0.3 0.9 0.2
Interest expense (0.6) (1.4) (3.2) (2.0) (2.0) (1.4) 0.0 0.0
Other income (expense), net 0.1 0.2 (0.0) 0.1 0.0 (3.1) 0.2 (0.2)
Net income (loss) (34.7)% (51.0)% (43.4)% (20.3)% (24.9)% (16.5)% (1.2)% 2.5%
(1) Amounts include stock-based compensation of 0.1% 0.2% 0.2% 0.3% 0.8% 0.7% 0.4% 0.2%
(2) Amounts exclude stock-based compensation as follows:
Sales and marketing expenses 0.0% 0.0% 0.0% 0.0% 0.2% 0.1% 0.1% 0.1%
General and administrative expenses 0.7 1.5 1.6 2.2 6.8 5.5 2.7 1.3
0.7% 1.5% 1.6% 2.2% 7.0% 5.6% 2.8% 1.4%
Our direct revenue and commission revenue have increased in every quarter on a year-over-year basis. The general increase in total revenue is due to the
expansion of our customer base as we attracted more visitors to our Websites, as well as repeat purchases from these customers. We have experienced
significant seasonality in our business, reflecting a combination of seasonal fluctuations in Internet usage and traditional retail seasonality patterns. Internet
usage and the rate of Internet growth may be expected to decline during the summer. Further, sales in the traditional retail industry are significantly higher in
the fourth calendar quarter of each year than in the preceding three quarters. Commission revenue increased during the past several quarters due to the
implementation and expansion of our commission program. We initiated a warehouse sale in the first quarter of 2002 to liquidate the remaining inventory
from the Gear.com acquisition. Current warehouse revenue is received from sales in our warehouse store.
Cost of goods sold as a percentage of total revenue has generally decreased during the eight quarters ended December 31, 2002, from 89% of total
revenue during the first quarter of 2001 to 78% of total revenue during the fourth quarter of 2002. Additionally, cost of goods sold as a percentage of total
revenue for each quarter during 2002 was less than each corresponding period in the prior year. This improvement is a result of efficiencies in the cost paid to
suppliers for products and the economies of scale resulting from the increased number of sales transactions as well as efficiencies in operations.
Total operating expenses as a percentage of total revenue have decreased on a year-over-year basis each quarter during 2002 as compared to 2001 as a
result of economies of scale achieved through increased sales volume. In the near future, we expect to continue to devote substantial resources to the
expansion of our sales and marketing efforts, and expect that total operating expenses may increase in absolute dollars in future periods. These expenses as a
percentage of total revenue will vary depending on the level of revenue obtained.
Due to the foregoing factors, in one or more future quarters our operating results may fall below the expectations of securities analysts and investors. In
such an event, the trading price of our common stock would likely be materially adversely affected.
Effect of Recent Accounting Pronouncements
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