Is Wayfair Stock A Buy?

Although Wayfair (W) reported a 10% decrease in year-over-year net revenue for the second quarter of 2021 ending June 30, that net revenue number was still up 11% from the previous quarter.

$3.9 billion in net revenue may be less than what the company saw in the second quarter of last year, during the early days of the pandemic, but those fluctuations can be explained. In in the last shareholder call, it was revealed that Wayfair was doing better on profitability and cash flow.

 

Wayfair has been on a roller coaster earnings ride.

In 2021, the numbers have been somewhat stable, with decent growth moving from Q1 to Q2. In the first quarter, Wayfair reported $1.00 in EPS. Quarter two saw that figure almost double, rising to $1.89. That’s not bad for a firm dealing with intense competition. 

Wayfair earnings per share have experienced wild gyrations over the past year. Starting the year with negative EPS of -$2.30, Wayfair then experienced a whopping $3.13 EPS in the second quarter.

The third quarter saw positive EPS of $2.30, ironically the mirror image of the first quarter’s negative depth plunge, and the fourth quarter saw earnings of $1.24, a respectable EPS, not a summit or trough. 

Moving forward, analysts don’t expect EPS above two dollars. What they do expect is a slightly lower EPS for quarter three, with, for example, a consensus estimate of $0.84 per share. Still, EPS in positive territory is better than the alternative.

Wayfair E-Commerce Went Through The Roof

Essentially, W had experienced more revenues in 2020 because of people’s buying habits during pandemic lockdowns, and a lot of uncertainty about coronavirus.

E-commerce went through the roof. But if e-commerce went crazy just because of impromptu lockdowns when people avoided brick and mortar, that spike would not sustain itself as things started to open up again. Top brass at Wayfair pointed out in the Q2 call that e-commerce sales have persisted.

The company had its biggest annual ‘Way Day’ event ever, and as these types of events are becoming more important for large e-commerce retailers. Add to the sales spike stronger consumer balance sheets, and investors can rightfully hope that W returns in the short term.

Specifically, some with a window into the company’s strategy suggest that revenue will continue to slump into Q3, preparing for more of a rebound in Q4.

New Markets and Customer Attention

Another strategy recently revealed by internal leadership is that Wayfair is trying to integrate itself more fully into the North American and European markets. These markets have a total combined value of $800 billion, a massive opportunity.

As for supply chains, although retailers across the board have experienced negative pressures, management offered a rosy outlook on their supplier’s ability to be agile and adapt, and new inventory tools might help as well.

Another tool in Wayfair’s toolkit is heightened customer relationship management (CRM) insights. For example, after doing the research, internal staffers reported a new tendency toward smaller basket sizes and more repeat business over time. Figures on lifetime business show a loyal customer base.

Professional and B2C Business

The rise of its professional segment is a core focus for Wayfair moving forward.

With a division called Wayfair Professional expected to make up a significant amount of revenue in coming quarters, it makes sense to pay attention to this pivot in addition to the company’s initiatives for B2C sales in Europe.

Along with the core revenue numbers, there are other indicators that are comforting to investors who think that Wayfair has further to fly.

The company has been enjoying nearly 30% gross margins, and has $2.6 billion in cash on hand, according to that June call.

A key metric: ‘advertising as a percent of net revenue’ is estimated at 10% to 11%, a reasonable number to say the least and positive sign for future margins.

The Bottom Line and Wayfair Stock Price

At its current price, Wayfair is at significant year-long lows. 52-week highs are in the $360 range, and the low per-share price, is, for some, a warning.

For others, the price point is attractive: it makes Wayfair something of a firesale opportunity. Investors who like to pick up stocks on a dip will be attracted to Wayfair if they can see the viable long-term projection for the company with all of the above factored in.

Applying a discounted cash flow forecast model reveals a fair market price share close to $300 for W. 

The downside for some investors may be a changing e-commerce and online retail environment. Wayfair has been establishing itself as a brand name, but further diversification and decentralization in the industry could hurt W in a significant way.

That might see the core value drop to the point where Wayfair might not experience that vibrant comeback as expected by the bulls.

The retail market is large and fragmented, but the above numbers tell a story of Wayfair’s recent achievements and challenges in the sector. E-commerce bulls are watching the ticker to see if W can rise again. If the firm is to return to former highs, online will be the growth lever to catapult it as it has for so many other successful retailers from Amazon (AMZN) to Target (TGT).

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.