Overstock.com 2015 Annual Report Download - page 50

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Revenues in 2015 increased 11% compared to 2014. The growth in revenue was primarily due to an 8% increase in orders, coupled with a 4%
increase in average order size, from $169 to $175. Although our average order size has increased in recent years, we expect the rate of increase to lessen as our
sales mix shift into home and garden products becomes fully realized. In addition, the percentage of revenue we defer from orders taken but not delivered was
less due to the timing of year end. These increases were partially offset by increased promotional activities including coupons, site sales, and Club O Rewards
(which we recognize as a reduction of revenue) due to our driving a higher proportion of our sales using such promotions, and by an increase in returns.
During the second half of 2015, we experienced some slowing of our overall revenue growth which we believe was due in part to changes that
Google made in its natural search engine algorithms, to which we are responding. While we worked to adapt to Google’s changes, we increased our emphasis
on other marketing channels, such as sponsored search and display ad marketing, which generated revenue growth but with higher associated marketing
expenses than natural search.
In 2015, we transitioned a significant number of customers into our Club O Silver program and began to shift coupon offers into Club O rewards. We
believe that the shift from coupons to rewards will benefit us in the long-term, but we have experienced some difficulties with the transition, and in the short-
term we believe it slowed our revenue growth as customers take time to become accustomed to this change. We are continuing to test and refine our approach
in this transition.
Gross profit in 2015 increased 9% compared to 2014 primarily as a result of revenue growth. Gross margin decreased to 18.4% in 2015 compared to
18.6% in 2014. The decrease in gross margin was primarily due to increased promotional activities including coupons, site sales, and Club O Rewards (which
we recognize as a reduction of revenue) due to our driving a higher proportion of our sales using such promotions, partially offset by a continued shift in
sales mix into higher margin home and garden products.
Sales and marketing expenses as a percentage of revenue increased from 7.3% to 7.5% during 2015 as compared to 2014, primarily due to increased
spending in the display ad and brand marketing channels.
As a result of these factors, we had a 8.2% increase in Contribution in 2015 compared to 2014 (see Non-GAAP Financial Measures below for a
reconciliation of Contribution to Gross Profit). Contribution margin was 11.2% in 2015 and 11.5% in 2014. In 2015, we changed our calculation of
contribution and contribution margin to include Club O Rewards and gift card breakage as described below in Non-GAAP Financial Measures. To improve
the comparability between periods, the amounts disclosed for prior years reflect this change.
Technology expenses in 2015 increased $12.3 million compared to 2014, primarily due to an increase in depreciation of $6.1 million and an
increase in staff-related costs of $4.9 million.
General and administrative expense in 2015 increased $10.4 million compared to 2014, primarily due to an increase of $5.9 million in staff and
travel related costs, an increase in management consulting services of $2.9 million, a $1.0 million expense for a contract termination fee, and an increase in
depreciation and amortization of $932,000 (including amortization of intangible assets related to our recent acquisition).
In January 2016, we entered into a settlement agreement in our long-standing prime broker litigation. The defendants agreed to pay us and our co-
plaintiffs $20 million, which will conclude the litigation in its entirety. We will recognize the settlement in Q1 2016.
In Q3 2015, our majority-owned subsidiary Medici (dba tØ.com) entered into agreements to acquire the assets and business of a financial technology
company and three related registered broker-dealers for approximately $30.3 million as part of its initiatives to develop fintech and crypto software products
and intellectual property including proprietary blockchain software. Medici closed on the acquisition of the financial technology company's assets in 2015
and on the acquisition of two of the broker-dealers in January 2016. Medici related expenses (including acquisition transaction costs) were $7.7 million in
2015. We are exploring possible synergies between Medici and our retail business, and also considering other alternatives for Medici including a spin-off or
raising capital in Medici.
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