Wayfair (W)

Online home goods retailer Wayfair (NYSE:W) announced better-than-expected revenue in Q3 CY2025, with sales up 8.1% year on year to $3.12 billion. Its non-GAAP profit of $0.70 per share was 59.3% above analysts’ consensus estimates.

Company Overview

Founded in 2002 by Niraj Shah, Wayfair (NYSE:W) is a leading online retailer of 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.

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Wayfair struggled to consistently increase demand as its $12.24 billion of sales for the trailing 12 months was close to its revenue three years ago. This wasn’t a great result and suggests it’s a low quality business.

This quarter, Wayfair reported year-on-year revenue growth of 8.1%, and its $3.12 billion of revenue exceeded Wall Street’s estimates by 3.5%.

Looking ahead, sell-side analysts expect revenue to grow 3% over the next 12 months. Although this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

Buyer Growth

As an online retailer, Wayfair generates revenue growth by expanding its number of users and the average order size in dollars.

Wayfair struggled with new customer acquisition over the last two years as its active customers have declined by 1.9% annually to 21 million in the latest quarter. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Wayfair wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.

In Q3, Wayfair’s active customers once again decreased by 700,000, a 3.2% drop since last year. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t moving the needle for buyers yet.

Revenue Per Buyer

Average revenue per buyer (ARPB) is a critical metric to track because it measures how much customers spend per order.

Wayfair’s ARPB growth has been subpar over the last two years, averaging 1.8%. This raises questions about its platform’s health when paired with its declining active customers. If Wayfair wants to grow its buyers, it must either develop new features or lower its monetization of existing ones.

This quarter, Wayfair’s ARPB clocked in at $578. It grew by 6.1% year on year, faster than its active customers.

For online retail (separate from online marketplaces) businesses like Wayfair, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include the cost of acquiring the products sold, shipping and fulfillment, customer service, and digital infrastructure.

Wayfair’s unit economics are far below other consumer internet companies because it must carry inventories as an online retailer. This means it has relatively higher capital intensity than a pure software business like Meta or Airbnb and signals it operates in a competitive market. As you can see below, it averaged a 30.2% gross margin over the last two years. That means Wayfair paid its providers a lot of money ($69.80 for every $100 in revenue) to run its business.

This quarter, Wayfair’s gross profit margin was 30%, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Consumer internet businesses like Wayfair grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

It’s relatively expensive for Wayfair to acquire new users as the company has spent 49.4% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates that Wayfair operates in a competitive market and must continue investing to maintain an acceptable growth trajectory.

Operating income is often evaluated to assess a company’s underlying profitability. In a similar vein, EBITDA is used to analyze consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a clearer view of the business’s profit potential.

Wayfair has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer internet business, producing an average EBITDA margin of 4.4%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Wayfair’s EBITDA margin rose by 7.8 percentage points over the last few years, showing its efficiency has improved.

In Q3, Wayfair generated an EBITDA margin profit margin of 6.7%, up 2.5 percentage points year on year. The increase was encouraging, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

In Q3, Wayfair reported adjusted EPS of $0.70, up from $0.22 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Wayfair’s full-year EPS of $1.42 to grow 50.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Wayfair has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.4%, subpar for a consumer internet business. The divergence from its good EBITDA margin stems from its capital-intensive business model, which requires Wayfair to make large cash investments in working capital (i.e., stocking inventories) and capital expenditures (i.e., building new facilities).

Taking a step back, an encouraging sign is that Wayfair’s margin expanded by 11.2 percentage points over the last few years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Wayfair’s free cash flow clocked in at $93 million in Q3, equivalent to a 3% margin. This result was good as its margin was 3.3 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Wayfair reported $1.23 billion of cash and $3.61 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $615 million of EBITDA over the last 12 months, we view Wayfair’s 3.9× net-debt-to-EBITDA ratio as safe. We also see its $97 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Wayfair blew past analysts’ EBITDA expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its number of active customers slightly missed. Zooming out, we think this was a still quite a good quarter. The stock traded up 12.8% to $97.55 immediately after reporting.

Updated: December 4, 2025 at 9:25 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Wayfair.

Wayfair isn’t a terrible business, but it doesn’t pass our quality test. To kick things off, its revenue was flat over the last three years. And while its rising cash profitability gives it more optionality, the downside is its active buyers have declined. On top of that, its gross margins make it extremely difficult to reach positive operating profits compared to other consumer internet businesses.

Wayfair’s EV/EBITDA ratio based on the next 12 months is 15.7x. This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $113 on the company (compared to the current share price of $94.27).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.