Shares of online home goods retailer Wayfair (NYSE: W) jumped 8.1% in the morning session after the company announced a significant workforce reduction as part of its efforts to optimize costs. The move involves approximately 1,650 employees, representing around 13% of its global workforce and 19% of its corporate team. The company expects this action to deliver annualized cost savings exceeding $280 million.
Wayfair's CEO, Niraj Shah, emphasized the focus on maximizing Adjusted EBITDA and Free Cash flow. He added that, "Although persistent category weakness makes revenue growth challenging, we remain encouraged by the share gains we continue to see...Based on today's announcement, in a hypothetical flat revenue environment - inclusive of the rebuilt roles - we would now expect to deliver over $600 million of Adjusted EBITDA in 2024." Given the backdrop of a tighter lending environment due to relatively higher interest rates favoring companies with solid balance sheets and ample cash to weather economic downturns, Wayfair's move to improve its cost structure should raise investors' optimism toward the business.
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What is the market telling us:
Wayfair's shares are very volatile and over the last year have had 63 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 2 days ago, when the company dropped 5.3% after the broader market downturn as the Dow fell for the third straight day amidst surging yields. The decline was influenced by stronger-than-expected December 2023 retail sales, up 0.6% from November 2023 (versus expectations for 0.4% growth), potentially challenging expectations of aggressive Federal Reserve rate cuts in 2024.
This marked a shift from the more optimistic market sentiment at the end of 2023, as more market data revealed inflation is cooling. However, recent market pullbacks indicate increased uncertainty in 2024, suggesting caution as stocks might be overbought.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Wayfair is down 5% since the beginning of the year, and at $55.78 per share it is trading 34.1% below its 52-week high of $84.67 from August 2023. Investors who bought $1,000 worth of Wayfair's shares 5 years ago would now be looking at an investment worth $574.25.
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