Wayfair (NYSE:W) Beats Q3 Sales Targets But Usage Drops

Kayode Omotosho /
2022/11/03 7:14 am EDT

Online home goods retailer Wayfair (NYSE: W) reported results ahead of analyst expectations in the Q3 FY2022 quarter, with revenue down 9% year on year to $2.84 billion. Wayfair made a GAAP loss of $283 million, down on its loss of $78 million, in the same quarter last year.

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Wayfair (W) Q3 FY2022 Highlights:

  • Revenue: $2.84 billion vs analyst estimates of $2.8 billion (1.07% beat)
  • EPS (non-GAAP): -$2.11 vs analyst estimates of -$2.17
  • Free cash flow was negative $538 million, compared to negative free cash flow of $244 million in previous quarter
  • Gross Margin (GAAP): 29%, up from 28.2% same quarter last year
  • Trailing 12 Months Active Customers: 22.6 million, down 6.6 million year on year

“We’re continuing the work we set out last quarter to control the controllables and orienting Wayfair in this environment around three key principles: driving cost efficiency, nailing the basics, and earning customer and supplier loyalty every day. We are all focused on taking the steps needed to reach adjusted EBITDA profitability and cash flow neutrality in short order,” 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.

Sales Growth

Wayfair's revenue growth over the last three years has been mediocre, averaging 17.6% annually. Unfortunately, the pandemic had a negative impact on Wayfair's revenue growth.

Wayfair Total Revenue

This quarter, Wayfair reported a rather lacklustre 9% year on year revenue decline, in line with analyst estimates.

Before the earnings results were announced, Wall St analysts covering the company were estimating revenues to decline 0.12% over the next twelve months.

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Usage Growth

As an online retailer, Wayfair generates revenue growth by growing both the number of buyers, and the average order size.

Over the last two years the number of Wayfair's active buyers, a key usage metric for the company, grew 6.16% annually to 22.6 million users. This is an ok growth for a consumer internet company.

Wayfair Trailing 12 Months Active Customers

Unfortunately, in Q3 the number of active buyers decreased by 6.6 million, a 22.6% drop year on year.

Key Takeaways from Wayfair's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Wayfair’s balance sheet, but we note that with a market capitalization of $3.78 billion and more than $1.28 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

Wayfair topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, there was a decline in number of users and the revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from Wayfair. The company is flat on the results and currently trades at $35.92 per share.

Wayfair may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.