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CORRESP
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filename1.htm

February 26,
2008

By EDGAR and by Facsimile to (202) 772-9202

Securities
and Exchange Commission

100
F Street

Washington,
D.C.  20549

  Attention:

  Millwood
  Hobbs

  Staff
  Accountant

  Division
  of Corporation Finance

  Re:

  Overstock.com, Inc.

  SEC
  Comment Letter dated November 15, 2007

  Form 10-K
  for the fiscal year ended December 31, 2006

  Forms
  10-Q for the fiscal quarters ended September 30, 2007, June 30,
  2007 and March 31, 2007

  File
  No. 0-49799

Dear
Mr. Hobbs:

We
write in response to your letter dated January 4, 2008 regarding the
above-referenced filings.  The following
responses are numbered to correspond to the Staff’s comments.

SEC
Comment — 1.  Where a comment below requests additional disclosure to be included,
please show us in your supplemental response what the revised disclosures will
look like.  These additional disclosures
should be included in your future filings.

See
responses below.  We will provide these
additional disclosures in future filings.

SEC
Comment — 2. We note your revised disclosure and response to comment 2 of our
letter dated November 15, 2007 regarding revenues contributed by each
class of product or service. It is not clear to us why you believe disclosing
80% of your revenues in a “general merchandise” category would provide
investors with an understanding of your sales mix as opposed to categories such
as jewelry, home, bedding, furniture, and clothing. Please revise your proposed
disclosure by identifying more product categories based on your product offerings
to comply with the requirement of Item 101(c)(1)(i) of Regulation S-K.

In
response to your request, we have revised our proposed disclosure to include
additional product categories, grouped in “classes of similar products” as required
by Regulation S-K.  We will include the
following table in Part I, Item 1 of future Reports on Form 10-K:

For
2005, 2006 and 2007, the percentages of gross sales contributed by similar
classes of products were as follows:

1

  Percentage of Sales

  Category

  2005

  2006

  2007

  Home
  and garden(1)

  41

  %

  42

  %

  44

  %

  Jewelry,
  watches, clothing and accessories

  28

  %

  27

  %

  25

  %

  BMMG(2), electronics and
  computers

  23

  %

  23

  %

  23

  %

  Other

  8

  %

  8

  %

  8

  %

  Total

  100

  %

  100

  %

  100

  %

(1)
Home and garden includes home décor, bedding, bath, furniture, housewares, garden,
patio and other related products.

(2)
BMMG stands for “Books, Music, Movies and Games”.

SEC
Comment — 3. We note your response to comment 5 of our letter dated November 15,
2007 regarding your policy for revenue recognition and SAB Topic 13:A.
According to your response, you currently recognize revenue for direct revenue
and fulfillment partner revenue based on the premise that risk of loss and
title transfers to the customer on the date of delivery to the carrier.
However, as stated in your response, in substance, risk of loss does not
transfer to the customer at point of shipment, but instead transfers to the
customer upon delivery and acceptance. Since assumption for risk of loss is a
significant obligation during the delivery process, we are not persuaded that
you should recognize revenue before the delivery process is complete. Please
revise disclosure of your accounting policy accordingly to clarify that risk of
loss transfers to the customer upon delivery and acceptance for all sales at
which time revenue is recognized. Please revise your financial statements
accordingly to reflect revenue being recognized based on delivery to the
customer for all periods presented and provide the disclosures required by SFAS
154 for correction of an error.

Part I: In response
to your first request, we will expand our revenue recognition disclosure to
state when risk of loss transfers to the customer and when revenue is
recognized in the “Critical accounting policies and estimates” section of
MD&A, and in the footnotes to the financial statements, as follows:

“Revenue is
recognized when the following revenue recognition criteria are met: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or the
service has been provided; (3) the selling price or fee revenue earned is
fixed or determinable; and (4) collection of the resulting receivable is
reasonably assured.  Revenue related to merchandise sales
is recognized upon delivery to and acceptance by our customer.  We estimate delivery date based on transit
time information provided by our shipping carriers. The delivery date is
typically one to six business days from the date of shipment.”

2

Part II: In response
to your second request, we considered the guidance in SAB 99, SAB 108 and SFAS
154. We have concluded that the effect of the error is immaterial for all
periods (see our materiality analysis in the enclosed EXHIBITS A
and B, and our SAB 99 analysis in the
enclosed EXHIBIT C). Accordingly, we have
concluded that it is appropriate to record the effect of the correction in the
fourth quarter of 2007, effectively deferring all sales that were in-transit as
of that date, along with the corresponding cost of sales. Note that the nature
of the error is self-correcting, as amounts deferred in one period are properly
recognized in the next period, rather than accumulating from period to period.

Initially,
we analyzed the effect of the error compared to certain “rules of thumb” sometimes
used as a starting point to assess the materiality of an error (i.e. the
percentage error in net income). The result of this analysis indicated that the
error represented a less than five percent change in net income for the annual
periods ended 2003 through 2007 and the quarterly periods during 2006 and 2007,
with the exception of the 2004 annual period (see EXHIBIT A).  The effect in 2004 is primarily due to the
narrowing loss in 2004, rather than the importance of the error to a reasonable
investor making an investment decision. In absolute dollar terms, the
correction to 2004 revenue is only $4.3 million on a $494.6 million year (less
than 1%), and the correction to net income is only $923k.

Accordingly,
while such rules of thumb regarding materiality are a relevant starting
point for assessing materiality, they are not by themselves determinative.  Thus, consistent with SAB 99 and SAB 108, we
considered all of the relevant qualitative factors surrounding the error in
determining whether the error was material.
Based on our analysis of the effect the correction would have on trends
in revenue, gross profit and earnings, we have concluded that the error was not
material because it would not be significant to a reasonable investor relying
on the 2004 reported financial statements in making an investment
decision.  As support for this
conclusion, see the following tables showing revenue, gross profit and net
income for the five annual periods to be presented in the 2007 10-K
(2003-2007):

Table A - Revenue

  Revenue

  Revenue

  Diff. as a %

  as

  as

  of Reported

  $

  Reported

  Adjusted

  Revenue

  Difference

  FY 2003 (rollover)

  $

  238,945,000

  $

  237,200,926

  -0.73

  %

  $

  (1,744,074

  )

  FY 2004 (rollover)

  $

  494,635,000

  $

  490,290,699

  -0.88

  %

  $

  (4,344,301

  )

  FY 2005 (rollover)

  $

  799,316,000

  $

  792,543,320

  -0.85

  %

  $

  (6,772,680

  )

  FY 2006 (rollover)

  $

  788,150,000

  $

  788,598,283

  0.06

  %

  $

  448,283

  FY 2006 (iron curtain)

  $

  788,150,000

  $

  775,892,860

  -1.56

  %

  $

  (12,257,140

  )

  FY 2007 (rollover)

  $

  773,843,000

  $

  777,515,188

  0.47

  %

  $

  3,672,188

  FY 2007 (iron curtain)

  $

  773,843,000

  $

  766,026,971

  -1.01

  %

  $

  (7,816,029

  )

3

Table B - Gross Profit

  Gross Profit

  Gross Profit

  Diff. as a %

  as

  as

  of Reported

  $

  Reported

  Adjusted

  Gross Profit

  Difference

  FY 2003 (rollover)

  $

  25,716,000

  $

  25,527,743

  -0.73

  %

  $

  (188,257

  )

  FY 2004 (rollover)

  $

  66,239,000

  $

  65,424,744

  -1.23

  %

  $

  (814,256

  )

  FY 2005 (rollover)

  $

  116,876,000

  $

  116,310,466

  -0.48

  %

  $

  (565,534

  )

  FY 2006 (rollover)

  $

  94,800,000

  $

  95,398,198

  0.63

  %

  $

  598,198

  FY 2006 (iron curtain)

  $

  94,800,000

  $

  93,660,086

  -1.20

  %

  $

  (1,139,914

  )

  FY 2007 (rollover)

  $

  132,638,000

  $

  132,566,430

  -0.05

  %

  $

  (71,570

  )

  FY 2007 (iron curtain)

  $

  132,638,000

  $

  131,426,515

  -0.91

  %

  $

  (1,211,485

  )

Table C - Net Income

  Net Income

  Net Income

  Diff. as a %

  as

  as

  of Reported

  $

  Reported

  Adjusted

  Net Income

  Difference

  FY 2003 (rollover)

  $

  (11,810,000

  )

  $

  (11,998,257

  )

  1.59

  %

  $

  (188,257

  )

  FY 2004 (rollover)

  $

  (4,728,000

  )

  $

  (5,651,256

  )

  19.53

  %

  $

  (923,256

  )

  FY 2005 (rollover)

  $

  (25,103,000

  )

  $

  (25,559,534

  )

  1.82

  %

  $

  (456,534

  )

  FY 2006 (rollover)

  $

  (101,865,000

  )

  $

  (101,266,802

  )

  -0.59

  %

  $

  598,198

  FY 2006 (iron curtain)

  $

  (101,865,000

  )

  $

  (103,004,914

  )

  1.12

  %

  $

  (1,139,914

  )

  FY 2007 (rollover)

  $

  (43,331,000

  )

  $

  (43,402,570

  )

  0.17

  %

  $

  (71,570

  )

  FY 2007 (iron curtain)

  $

  (43,331,000

  )

  $

  (44,542,485

  )

  2.80

  %

  $

  (1,211,485

  )

Note
that the effect of the correction on revenue is less than 1% for each year, and
the effect on gross profit is less than 2%. The effect on net income is also less
than 2%, except for 2004. However, as is shown in Table C above, the absolute
dollar value of the net loss in 2004 was much smaller than in other years (less
than $5 million), which magnifies the percentage difference in net income after
the correction. We conclude that the correction does not affect the overall
trend in earnings, nor does it change the results enough to effect a reasonable
investor’s decision.

We
have concluded that the qualitative factors (discussed in our qualitative SAB
99 analysis in the enclosed EXHIBIT C) related
to the proposed error correction and its impact on the 2003-2007 financial
statements indicate that the proposed error correction is immaterial.  As the number of days’ sales to be deferred
and the total sales dollars per day do not change significantly from period to
period, we would conclude that the error does not mask a change or trend in
revenue or earnings.

Based
on our conclusion that the period errors are immaterial to the previously
issued financial statements, we analyzed the impact of recording the full
adjustment in Q4 2007, and determined that the impact is immaterial to the Q4
2007 and to the full year 2007 financial statements (i.e., using the dual
method prescribed in SAB 108). The impact of

4

the
cumulative adjustment in 2007 on revenue and net income is 1.1% and 2.8%,
respectively.

Additionally,
we disclosed the estimated cumulative effect of the error related to the correction
in our Q4 and FY 2007 earnings release and conference call on January 30,
2008. The stock price has not moved significantly since the earnings release
date. Therefore, we believe that recording the cumulative adjustment in Q4 2007
would not affect a reasonable investor making an investment decision. In addition,
analyst reports published subsequent to the earnings release made no mention of
the cumulative adjustment or the correction. Therefore, we believe that
recording the full adjustment in Q4 2007 was not an issue of concern to
analysts.

We
performed an analysis on the factors that are most important to management and
to our investors, using specific data from 2006-2007 earnings releases,
conference calls and analyst reports. This analysis has shown that as we have a
history of losses (only two profitable quarters and no profitable years as a
public company), management’s focus and communications have been on improving
areas that support revenue and demonstrate progress towards profitability (such
as revenue growth, growth in gross profits, contribution margin and EBITDA)
rather than on net income.  We have
concluded that the qualitative factors shown in the 2006-2007 analysis are
applicable and important to investors in assessing our performance during prior
periods, including 2004 (see an overview/history of the company and support for
management/analyst sentiments during 2006-2007 in the enclosed EXHIBIT D).

Based
on the points discussed above and our responses to the qualitative issues
detailed in the SAB 99 analysis, we believe it is appropriate to record the full
effect of the correction of the error in Q4 2007.

In
relation to the adjustment, we will include the following disclosure within
both our MD&A and notes to our financial statements:

“From
our inception through the third quarter of 2007, we recorded revenue based on
product ship date. In the fourth quarter of 2007, we determined that we should
not have recorded revenue until the delivery date. We performed a detailed
analysis of this error and the impact of recording the cumulative effect of the
error in the fourth quarter of 2007, and have determined that the impact of the
correction is immaterial to the fourth quarter of 2007 and to all prior
periods.

As
a result, in accordance with Staff Accounting Bulletin No. 108, “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements” (SAB 108), we recorded the cumulative effect
of this correction in the fourth quarter of 2007. This change resulted in a deferral
of $7.8 million of revenue (including $2.1 million of direct revenue and $5.7
million of fulfillment partner revenue), and a decrease in cost of goods sold
of $6.6 million ($1.8 million direct and $4.8 million fulfillment partner),
which reduced gross

5

profit
and net income by $1.2 million (see Item 15 of Part IV, “Financial
Statements” —Note 2 — “Summary of Significant Accounting Policies” — “Revenue
Recognition”).  Prospectively, we will
make a deferral each quarter based on estimated product delivery date.

Additionally,
in the “Quarterly Financial Data” footnote in our financial statements, we will
add the following note to the Q4-2007 data:

“Includes the correction
of an error requiring a change in revenue recognition from ship date to
estimated delivery date. This correction resulted in a deferral of $7.8 million
of revenue (including $2.1 million of direct revenue and $5.7 million of fulfillment
partner revenue), and a decrease in cost of goods sold of $6.6 million ($1.8 million
direct and $4.8 million fulfillment partner), which reduced gross profit and
net income by $1.2 million (see Item 15 of Part IV, “Financial Statements”
—Note 2 — “Summary of Significant Accounting Policies” — “Revenue Recognition”).

SEC
Comment — 4. We note your response to comment 6 of our letter dated November 15,
2007 regarding your basis for gross reporting of revenue from fulfillment
partner sales. Please revise your disclosure to indicate that you are the
primary obligor on these transactions and revenue is reported on a gross basis.

We
will  revise our disclosure of fulfillment
partner revenue to state the following:

“We evaluate the criteria outlined in EITF
Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an
Agent, in determining whether it is appropriate to record the gross amount of
product sales and related costs or the net amount earned as commissions. When
we are the primary obligor in a transaction, are subject to inventory risk,
have latitude in establishing prices and selecting suppliers, or have several
but not all of these indicators, revenue is recorded gross. If we are not the
primary obligor in the transaction and amounts e