Overstock.com 2013 Annual Report Download - page 41

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Table of Contents
gross profit was due to higher revenue, and $12.2 million due to the improvement in gross margin percentage. The increase in gross margin was primarily due
to the sales mix shift referenced above.
Sales and marketing expenses as a percentage of revenue increased from 5.8% in 2012 to 7.0% for 2013, primarily due to increased spending in the
sponsored search marketing channel due to a higher proportion of our revenue coming through that channel. In addition, during the last several weeks of
December 2013, we increased our marketing spending as a result of softer sales observed during this period. We continued to refine our marketing strategies in
the first quarter of 2014.
In late 2012, Google, Inc. (“Google”) discontinued providing its free Google Base product listing service to retailers and instead offered retailers a new
fee based product listing service. In addition, during Q3 2013, Google tested and later implemented changes to its search engine algorithms, which reduced our
ranking in certain Google search results during some periods. While we worked on adapting to Google's changes, we emphasized other marketing channels,
such as sponsored search, which generated revenue growth but with higher associated marketing expenses as a percentage of revenue than was the case for
revenue coming from Google Base and natural search.
Technology expense in 2013 increased $6.3 million compared to 2012, primarily due to an increase in staff-related costs partially offset by a decrease
in depreciation.
We continue to seek opportunities for growth in our business, including expanding our international sales and our distribution capabilities. We also
intend to begin to broker insurance products, and offer consumer financing products through a third party, to our customers in 2014. As a result, we expect to
continue to increase our technology expenses to support these initiatives.
General and administrative expense in 2013 increased $10.9 million compared to 2012, primarily due to $10.1 million of increased activity on legal
matters, including our defense of a case brought by district attorneys in eight California counties, and for civil penalties assessed in an adverse judgment
received in the case (which we intend to appeal).
Provision (benefit) for income taxes in 2013 was ($72.2) million compared to $485,000 in 2012. The large income tax benefit in 2013 was due to a
$79.7 million deferred tax asset valuation release in 2013 after concluding that it was more likely than not that we will realize our deferred tax assets.
The balance of our Management’s Discussion and Analysis of Financial Condition and Results of Operations provides further information about the
matters discussed above and other important matters affecting our business.
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