Overstock.com 2011 Annual Report Download - page 63

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Table of Contents
The decrease in net revenue for the year ended December 31, 2011 was primarily due to visits to our website decreasing 1% and new customer growth
decreasing 9%, partially offset by a slightly higher average order size.
We believe our revenues were negatively impacted during the first and second quarters of 2011 when Google Inc. notified us that it was penalizing us in
natural search results for noncompliance with some of Google's natural search guidelines. During this penalty period, we dropped significantly in some of
Google's natural search result rankings. We made changes to conform to Google's guidelines and on April 21, 2011 Google ended its penalization of our
natural search results. We were able to offset some of the negative impact to revenue by increasing expenditures in other marketing channels.
Revenues were also hurt by a shift of marketing resources into our Club O loyalty program and away from coupons and other site-wide promotions,
which were less effective in generating revenues during the second and third quarter of 2011.
We also believe that our efforts to rebrand ourselves from Overstock.com to O.co hurt revenue growth in 2011 as it confused some prospective
customers who had trouble finding our website.
Total revenues from the Auctions, Cars, Insurance, Travel and Real Estate businesses were $1.7 million and $2.9 million for the years ended
December 31, 2011 and 2010, respectively. Total revenues from International sales were $8.8 million and $9.4 million for the years ended December 31, 2011
and 2010, respectively.
See "Executive Commentary" above for additional discussion regarding revenue.
Gross profit
Our overall gross margins fluctuate based on our sales volume mix between our direct business and fulfillment partner business; changes in vendor and /
or customer pricing, including competitive pricing; inventory management decisions within the direct business; sales coupons and promotions; product mix of
sales; and operational and fulfillment costs.
The following table reflects our net revenues, cost of goods sold and gross profit for the year ended December 31, 2011 and 2010 (in thousands):
Year ended December 31,
2011 2010 $ Change % Change
Revenue, net
Direct $ 163,609 $ 209,646 $ (46,037) (22.0)%
Fulfillment partner 890,668 880,227 10,441 1.2%
Total net revenues $ 1,054,277 $ 1,089,873 $ (35,596) (3.3)%
Cost of goods sold
Direct $ 149,660 $ 187,124 $ (37,464) (20.0)%
Fulfillment partner 725,529 713,109 12,420 1.7%
Total cost of goods sold $ 875,189 $ 900,233 $ (25,044) (2.8)%
Gross Profit
Direct $ 13,949 $ 22,522 $ (8,573) (38.1)%
Fulfillment partner 165,139 167,118 (1,979) (1.2)%
Total gross profit $ 179,088 $ 189,640 $ (10,552) (5.6)%
57