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CORRESP
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DIVISION
OF

CORPORATION FINANCE

Mail Stop 3561

UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549-0404

  Attention:

  Andrew
  Mew

  Accounting
  Branch Chief

  Division
  of Corporation Finance

  Re:

  Overstock.com, Inc.

  SEC
  Comment Letter dated October 1, 2009

  Form 10-K
  Amendment No. 1 for the fiscal year ended December 31, 2008; Filed
  March 5, 2009

  Forms
  10-Q for the fiscal quarters ended June 30, 2009; Filed July 31,
  2009

  File
  No. 0-49799

Dear
Mr. Mew:

We
write in response to your letter dated October 1, 2009 regarding the
above-referenced filings.  The following
responses are numbered to correspond to the Staff’s comments:

Form 10-K/A Amendment No. I
for the Fiscal Year Ended December 31, 2008

Management’s Discussion and Analysis
of Financial Condition and Results of Operations, page 47

Critical
Accounting Policies and Estimates, page 49

Revenue
recognition, page 49

1.                               Reference is made to your
disclosure which indicates your actual shipping times may differ from your
estimates. We also note your disclosure on page 11 that customers can
track the shipping status of their packages through links you provide on your
website. Consequently, it would appear you are closely monitoring the shipping
and delivery status of customer packages. Please explain what effect this
tracking system has had on your ability to estimate
and track actual delivery times. In this regard, we assume you are
using this tracking information to refine your estimates of delivery times used
to calculate your deferred revenue. Please be detailed in your response.

In response to your question, we confirm that
we are using actual tracking information to refine our estimates of delivery
times used to calculate deferred revenue.

As detailed in our March 11, 2008
response to a prior SEC comment letter, we use this actual tracking data to
review and update our Adjusted Transit Time Schedule by State and by Carrier
Type (“Transit Time Schedule”) each reporting period. The Transit Time Schedule
is used in our analysis to determine an estimated amount of merchandise sales
to be deferred at each reporting period.

1

The Transit Time Schedule is initially based
on our carriers’ published transit time tables by the delivery destination
state/zone for the shipping carrier types of Less-than-Truck Load (“LTL”) and
United Parcel Service (“UPS”) for both Core and Fulfillment partner
deliveries.  Core deliveries are those
sales fulfilled from OSTK’s leased warehouse; Fulfillment partner sales are
fulfilled by the Company’s partners.  For
both Core and Partner sales, the products may be shipped by either LTL or UPS
shipment carriers.

The published transit times are then adjusted
quarterly for actual transit times recently experienced by the Company at the
end of each quarter using the shipping status data for a sample of actual
orders occurring within 30 days of quarter end.
We perform the following procedures to adjust our estimated Transit Time
Schedule’s transit times for each delivery state, carrier type and fulfillment
source:

·                  For the month prior to
quarter end cut-off, as it is the most recent actual shipping data, we
generally randomly select the shipment tracking numbers for approximately 1,200
orders, of which approximately 25% are Core LTL, 25% are Core UPS, 25% are
Partner LTL and 25% are Partner UPS.

·                  We then obtain actual
shipping status data provided by the shipping carriers for the above sampled
shipment tracking numbers and determine the delivery date for each of these
individual shipments and the number of in-transit delivery days.  The shipments’ transit delivery days are then
aggregated by delivery destination state and an average number of in-transit
delivery days is determined for each delivery destination state.

We then review and update the Transit Time
Schedule for the delivery destination state based on this recent actual
experience detailed in the above sample. An overall average of transit delivery
days for all delivery states for each carrier type and fulfillment source in
the Transit Time Schedule is also compared to the same overall average for the
sampled orders detailed above.  The
adjusted Transit Time Schedule by state and by carrier type is the basis for determining
our quarterly deferred revenue adjustment.
We consider only working days to determine average shipping transit days
in our Adjusted Transit Time Schedule by State and Carrier Type.  The following table shows the average
shipping transit days by fulfillment source and shipping carrier type:

Average Shipping Transit Days

  2008

  2009

  Q1

  Q2

  Q3

  Q4

  Q1

  Q2

  Core

  UPS

  5.6

  5.6

  5.6

  5.0

  5.0

  4.9

  LTL

  6.0

  6.0

  6.0

  7.4

  6.9

  6.1

  Partner

  UPS

  5.7

  5.7

  5.7

  4.9

  4.9

  4.9

  LTL

  5.1

  5.1

  5.1

  6.0

  5.8

  5.8

2

Our method of using recently experienced
actual tracking information to refine our estimates of delivery times to
calculate deferred revenue has not materially changed since initiation in Q4
2007.

2.                                    Please explain to us any
significant variances observed with regard to your actual versus estimated
shipping times for the year ended December 31, 2008, and for the quarters
ended March 31, 2009, and June 30, 2009. In this regard, please
summarize for us the results of your analysis including adjustments to revenue
and deferred revenue, and explain
to us the reasons for any material variances observed.

As
detailed in the response to comment No. 1 above, we review and update our
shipping transit time estimates on a quarterly basis based on our actual
transit time experience.

Because
we ship on average approximately 500,000 packages each month, it is not
feasible to track the actual shipping times for all packages that may be in
transit at period end.  The purpose of
the procedures described in our response to comment No. 1 is to refine our
estimate of shipments in transit at period end based on actual recent
experience of a sample of shipments.
This estimate is then used to determine the amount of revenue and cost
to defer at each period end for shipments in transit.  We believe that these procedures result in an
estimate that does not differ materially from the actual amount of undelivered
shipments (in terms of dollars of revenue and cost).

3.                               We note you began shipping to
international destinations in August 2008. Please explain to us and expand
your disclosure to indicate what effect this has had on your ability to
estimate shipping times and deferred revenue.

We
use a US-based third party to provide the payment and fulfillment logistics for
all international orders.  We ship all
international orders to the third party’s US shipping facility located on the
east coast of the US, where the third party takes title and risk of loss to the
product upon delivery.  We believe that
revenue is appropriately recognized by the Company at this time based on the
requirements of SAB 104.  The third party
then fulfills the order to the international customer.

We recognize revenue on these sales upon delivery to
the third party’s US shipping facility, using the same delivery estimate for it
that we use for other customers in the same geographical area (described under
comment No. 1 above).  Consequently,
the sales destined internationally have had no affect on our ability to
estimate shipping times and deferred revenue.
As a result, we do not believe that additional disclosure would assist
financial statement users.

4.                               Please expand your disclosure
here and elsewhere such as with regards to your discussion of the reserve for
returns to discuss how accurate your
estimates and assumptions have been in the past and whether they are
likely to change in the future. Refer to our Release 33-8350.

In
response to your comment, in future filings we propose to modify our
disclosures as follows (see proposed modifications underlined):

3

Reserve for returns

Total revenue is recorded net of estimated returns.
The Company maintains a reserve for returns based on estimates of future
product returns related to current period revenues and historical returns
experience. The Company analyzes actual historical returns, current economic
trends and changes in order volume and acceptance of its products when
evaluating the adequacy of the sales returns reserve in any accounting
period.  The Company’s actual product
returns have not differed materially from its estimates.  The Company is not currently aware of any
trends that it expects would significantly change future returns experience
compared to historical experience. The reserve for returns was
$6.9 million and $5.1 million at December 31, 2007 and 2008,
respectively.

The
proposed modification will be updated for each reporting period based on our
actual experience.

Reserve for obsolete and damaged
inventory, page 52

5.                               Reference is made to your risk factor related to your
inventory on page 22. Please explain to us and disclose how you account
for inventory shrinkage. In this regard, please disclose how often you measure
actual shrinkage and adjust your estimates; indicate how accurate your
estimates have been in the past.

Our
warehouse staff conducts daily cycle counts, counting all inventory SKU’s
within our warehouses at least once every 90 days, and more frequently for high
value product SKU’s or high volume SKU activity. Our warehouse staff also
conducts a full physical inventory count at year-end while the warehouses are
completely shutdown.

We
record inventory shrinkage adjustments monthly, based upon these counts. Our
average monthly shrinkage recorded during the year ended December 31, 2008
was approximately $6,227 and for the entire year was only $74,727. The year-end
2008 count resulted in a shrinkage adjustment of $4,521.

As
our inventory shrinkage has historically been insignificant, we do not maintain
a reserve for shrinkage, and do not believe that a discussion of our accounting
policy would assist financial statement users. However, as with any company
that has inventory, we believe there is risk of inventory shrinkage, and
accordingly have included it in with our discussion of various other inventory
risks in the referenced risk factor. If we do experience significant inventory
shrinkage in the future, we confirm that we will discuss it in our filings.

4

Internal-Use
Software and Website Development, page 53

6.                                    Please disclose the underlying
reasons for the significant increase in capitalized costs associated with your
internal-use software and website development for the year ended December 31,
2008.

During the years ended December 31, 2007
and 2008, we capitalized $2.0 million and $9.0 million, respectively,
of costs associated with internal-use software and website development, both internally
developed and acquired externally.

This
increase in capitalized internal-use software tracked our overall other
categories of expenditures for capital expenditures in total as detailed in the
table below:

  Year ended December 31,

  (in thousands)

  2006

  2007

  2008

  Cash expenditures for fixed assets

  $

  1,741

  $

  643

  $

  9,690

  Cash expenditures for internal-use software and
  website development

  $

  21,700

  $

  2,000

  $

  9,000

  Total expenditures

  $

  23,441

  $

  2,643

  $

  18,690

Prior
to the beginning of 2007, the Company had experienced periods of high sales
growth and consequently invested heavily in both fixed assets and internal-use
software expenditures to meet this increased growth in sales to date and
anticipated increased sales growth in the future.  However, in 2007, the Company’s sales growth
began to slow and management determined that expenditures for fixed assets and
internal-use software made in the prior years were sufficient to meet the new
level of sales growth and as such made minimal capital expenditures during that
year.

The increase of costs associated with
internal-use software and website development in 2008 is primarily due to our
initiation of new internal-use software projects designed to improve the
customer experience and increase sales revenue.
We also purchased approximately $3.0 million of additional software
licenses for our ERP system.

In response to your comment, in future
filings we propose to modify our disclosures as follows:

During the years ended December 31,
2007 and 2008, we capitalized $2.0 million and $9.0 million, respectively, of
costs associated with internal-use software and website development, both
internally developed and acquired externally.
The increase of costs associated with internal-use software and
website development is primarily due our initiation of new internal-use
software projects designed to improve the customer experience and increase
sales revenue.  The increase was also due
to approximately $3.0 million of additional software licenses for our ERP
system.

5

Commentary
— Gross Profit and Gross Profit Percentage, page 57

7.                                    We read your disclosure, “In
addition, during Q4 2008, we reduced Cost of Goods Sold by $1.8 million for
billing recoveries from partners who were under billed earlier in the year for
certain fees and charges that they were contractually obligated to pay. When
the under billing was originally discovered, we determined that the recovery of
such amounts was not assured, and that consequently the potential recoveries
constituted a gain contingency.
Accordingly, we determined that the appropriate accounting treatment for
the potential recoveries was to record their benefit only when such amounts
became realizable (i.e., an agreement had been reached with the partner and the
partner had the wherewithal to pay). We are currently reviewing our policies
and procedures surrounding partner supplier cost updates and partner billing
processes to ensure that the amounts contractually negotiated are billed in a
complete and timely manner. We may have further billing recoveries from our
partners in the future that we will seek to recover.” Please address the
following:

·                 Summarize
for us when and how the under billing issue was originally discovered and what
financial periods were affected by this issue. Please be detailed in your
response.

·                 Please
explain to us the nature of the fees and charges your partners were
contractually obligated to pay. Tell us if such amounts were related to reimbursements
due from your fulfillment partners made in connection with the refund and
credit errors.

·                 Citing
for us the relevant GAAP literature, explain to us why this under billing error
was not previously corrected in your restated December 31, 2007 Form 10-K, and
your March 31, 2008, and June 30, 2008 Forms 10-Q.

·                 Explain
to us how many fulfillment partners were under billed and the amount of under
billing per fulfillment partner. In this regard, please provide to us a list of
the under billed fulfillment partners. Please ensure the list contains the
names of the fulfillment partners and the amount of original under billing per
partner. In your response, tell us the total amount and timing of collections
to date, by fiscal quarter, from your fulfillment partners subsequent to the
discovery of this issue.

·                 Please
tell us the relevant GAAP literature supporting such under billing recoveries
as a gain contingency. Further, please explain why such recoveries were not
previously considered realizable and accrued with a provision for amounts
estimated to be uncollectible.

·      Also, tell us why your September 30, 2008
Form 10-Q did not disclose a gain contingency. Ref