Wayfair Earnings: Top Line Indicates Market Share Gains but Revenue Growth Could Slow
Despite operating in an extremely weak home furnishing landscape, no-moat Wayfair W was able to eke out top-line growth of 4% in its third quarter (to $2.9 billion), indicating that it’s taking market share in an industry that has trended down at a double-digit clip. Gross margin continues to impress, expanding more than 200 basis points to 31.2%, as improving costs, merchandising, and mix helped. This was the largest contributor to the firm’s 3.4% EBITDA margin, which modestly edged our 3.2% projection. Key metrics signal Wayfair may have found a support level for its demand, with the number of active customers down just 1% (up 2% sequentially), orders delivered up 14%, and customer acquisition costs contracting modestly over the prior quarter (by our math). Moreover, early indications point to further market share gains, with Wayfair calling for gross revenue to end the fourth quarter in a range of flat to up low single digits—a level that could be much better than the market given the weak spending across discretionary consumer categories.
With soft rhetoric around the consumer, we plan to lower our $99 fair value estimate for Wayfair by a mid-single-digit rate. We surmise spending could remain stretched well into 2024 given inflation remains above optimal and global macroeconomic and geopolitical concerns have created further anxiety around consumers’ ability to spend. Furthermore, while Wayfair pointed to its ability to support smaller household projects, existing home sales volume is still 36% below September 2021 levels, weighing on more significant purchases for staging and acquiring homes for sale. We don’t plan to alter our longer-term outlook that includes 5% sales growth and low-single-digit adjusted EBITDA margins over the next three to four years as Wayfair works through cost savings initiatives. By the end of the decade, if it can capitalize on its scale and marketing prowess, we think Wayfair could reach double-digit adjusted EBITDA margins.
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