Online home goods retailer Wayfair (NYSE: W) reported results ahead of analysts' expectations in Q2 FY2023, with revenue down 3.44% year on year to $3.17 billion. Wayfair made a GAAP loss of $46 million, improving from its loss of $378 million in the same quarter last year.
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Wayfair (W) Q2 FY2023 Highlights:
- Revenue: $3.17 billion vs analyst estimates of $3.1 billion (2.38% beat)
- EPS (non-GAAP): $0.21 vs analyst estimates of -$0.72 ($0.93 beat)
- Free Cash Flow of $128 million is up from -$234 million in the previous quarter
- Gross Margin (GAAP): 31.1%, up from 27.3% in the same quarter last year
- Trailing 12 Months Active Customers: 21.8 million, down 1.8 million year on year
"Last year, we laid out a plan to strengthen our business that included a path to sustainable and growing profitability with several key milestones. For the past few quarters, you've seen us execute against that plan - to lower our costs, focus on the basics and earn more customer and supplier loyalty. And you've seen the tangible impact of this plan as our performance has continued to improve. I'm pleased to share today that we've passed one of our key milestones and we are reporting positive adjusted EBITDA and positive free cash flow," said Niraj Shah CEO, co-founder and co-chairman, Wayfair.
Launched in 2002 by founder Niraj Shah, Wayfair (NYSE: W) is a leading online retailer for mass market home goods in the US, UK, Canada, and Germany.
Consumers ever rising demand for convenience, selection, and speed are secular engines underpinning ecommerce adoption. For years prior to Covid, ecommerce penetration as a percentage of overall retail would grow 1-2% annually, but in 2020 adoption accelerated by 5%, reaching 25%, as increased emphasis on convenience drove consumers to structurally buy more online. The surge in buying caused many online retailers to rapidly grow their logistics infrastructures, preparing them for further growth in the years ahead as consumer shopping habits continue to shift online.
Wayfair's revenue growth over the last three years has been unimpressive, averaging 5.58% annually. This quarter, Wayfair beat analysts' estimates but reported a year on year revenue decline of 3.44%.
Ahead of the earnings results, analysts covering the company were projecting sales to grow 2.59% over the next 12 months.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
As an online retailer, Wayfair generates revenue growth by expanding its number of buyers and the average order size in dollars.
Wayfair has been struggling to grow its active buyers, a key performance metric for the company. Over the last two years, its buyers have declined 15.3% annually to 21.8 million. This is one of the lowest rates of growth in the consumer internet sector.
In Q2, Wayfair's active buyers decreased by 1.8 million, a 7.63% drop since last year.
Key Takeaways from Wayfair's Q2 Results
With a market capitalization of $8.18 billion, Wayfair is among smaller companies, but its more than $1.25 billion in cash on hand and near break-even free cash flow margins puts it in a stable financial position.
It was good to see Wayfair beat analysts' revenue expectations this quarter, driven by a nice beat on orders and a slight beat on active customers. It was even better to see Wayfair smash adjusted EBITDA and free cash flow expectations, showing that its focus on profitability is paying off. The CEO stated "For the past few quarters, you've seen us execute against that plan - to lower our costs, focus on the basics and earn more customer and supplier loyalty...I'm pleased to share today that we've passed one
of our key milestones and we are reporting positive adjusted EBITDA and positive free cash flow". On the other hand, despite beating estimates, the decline in its user base was not a great sign. Overall, the results were strong. The stock is up 10.4% after reporting and currently trades at $80.5 per share. Guidance will be given on the call, which could further impact the stock reaction.
Wayfair may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.