Overstock.com 2011 Annual Report Download - page 68

Table of Contents
uncertainties. Accordingly, there can be no assurances that seasonal variations will not materially affect our results of operations in the future. The following
table reflects our total net revenues for each of the quarters in 2011 and 2010 (in thousands):
First
Quarter Second Quarter Third Quarter Fourth Quarter
2011 $ 265,470 $ 234,992 $ 239,738 $ 314,077
2010 264,330 $ 231,253 $ 245,420 $ 348,870
Comparison of Years Ended December 31, 2010 and 2009
Executive Commentary
This executive commentary is intended to provide investors with a view of our business through the eyes of our management. As an executive
commentary, it necessarily focuses on selected aspects of our business. This executive commentary is intended as a supplement to, but not a substitute for, the
more detailed discussion of our business included elsewhere herein, Investors are cautioned to read our entire "Management's Discussion and Analysis of
Financial Condition and Results of Operations", as well as our interim and audited financial statements, and the discussion of our business and risk factors
and other information included elsewhere or incorporated in this report. This executive commentary includes forward-looking statements, and investors are
cautioned to read the "Special Note Regarding Forward-Looking Statements" at the beginning of Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The key factors that affected financial results for the year ended December 31, 2010, were revenue growth, lower gross margin resulting from pricing
and marketing initiatives, expense management, and general improvement in Internet commerce.
Revenues in 2010 increased by 24% compared to 2009. Our pricing and marketing initiatives drove improvement in several key components of revenue
growth, including new customer growth, visits to our Website, conversion and average order size. Growth was broadly distributed across most of our major
product categories, and in both our direct and fulfillment partner business. Our direct business increased by 39%, and our fulfillment partner business
increased by 21%. The direct business was 19% of total revenue in 2010 compared to 17% in 2009, while our fulfillment partner business generated 81% of
our total revenue compared to 83% in 2009.
Revenue growth slowed over 2010 from 42% in Q1 to 8% in Q4. While this is partly explained by an increasing revenue growth pattern in 2009, we also
experienced softness during the holiday selling season that we believe was due in part to our decision to focus on contribution growth rather than revenue
growth, (see discussion of the non-GAAP financial measure "contribution" below), particularly by not heavily promoting our BMMG and consumer
electronics categories, both of which are popular holiday categories that typically have lower gross margin.
Gross margin fell by 140 basis points in 2010, although gross profit growth in 2010 was 15% compared to 14% in 2009. While we believe that pricing
initiatives had a positive effect on our revenue growth, they had the opposite effect on gross margin. This was offset somewhat by supply chain efficiencies
resulting from initiatives focused on returns and fulfillment, and from a favorable sales mix shift this year away from BMMG and consumer electronics into
home and garden products.
Sales and marketing expense as a percentage of revenue in 2010 fell 70 basis points to 5.6%. We believe that we used relatively effective advertising
campaigns and maintained a disciplined approach to marketing expenditures, and that our pricing and other promotional activities were also effective in
generating revenues. We believe that our primary focus of increasing contribution has been an important factor in improving our marketing efficiency.
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