What Happened?
Shares of online home goods retailer Wayfair (NYSE: W) fell 7.4% in the afternoon session as stocks tumbled (Nasdaq down 1.3%, S&P 500 down 1.1%) after the Fed signaled that there would be fewer cuts ahead (than expected) during the December 2024 FOMC meeting.
This announcement followed the committee's decision to reduce rates by 0.25% to a range of 4.25%–4.5%, which was largely in line with consensus forecasts. Looking ahead to 2025, the Fed is expected to implement two quarter-point rate cuts, suggesting that future policy adjustments will be implemented at a slower pace, with the committee reiterating a data-driven approach that factors future inflation data and updates on the labor market.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks, such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
The shares closed the day at $45.48, down 9.8% from previous close.
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What The Market Is Telling Us
Wayfair’s shares are extremely volatile and have had 46 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 8 months ago when the stock gained 18.6% on the news that the company reported first-quarter results that beat analysts' revenue and adjusted EBITDA expectations. Q2 guidance, which was given on the earnings call, was also comforting as it was in line to slightly above expectations. Specifically, Wayfair expects Q2 revenue to be flat to slightly up year on year compared to Q2 last year, in line with expectations. Adjusted EBITDA margin in Q2 is expected to be in the mid-single digit percentage range, which leaves some room for the company to exceed current expectations. On the other hand, its revenue growth slowed. Overall, this was a solid quarter for Wayfair.
Wayfair is down 23% since the beginning of the year, and at $45.29 per share, it is trading 37.9% below its 52-week high of $72.94 from May 2024. Investors who bought $1,000 worth of Wayfair’s shares 5 years ago would now be looking at an investment worth $526.75.
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