Andrew Left Scrutinizes Wayfair's Q1 Earnings, Says Company Will Never Make Money

Wayfair Inc W spiked 20 percent Tuesday after first-quarter earnings boasted a 2.7-percent sales beat and 46-percent year-over-year increase in active customers. A subsequent earnings conference call bolstered investor confidence with second-quarter sales guidance between $1.03 billion and $1.55 billion over a $990.5 million estimate.

While some responded favorably to the reports, including Gordon Haskett, who initiated coverage with a Buy rating and predicted 19.3-percent upside, longtime Wayfair bear Andrew Left was unimpressed.

“[The] company will never make money,” the Citron Research founder told Benzinga.

Left came out negative on the company in 2015, noted in 2016 that Wayfair stocks ought to be cut in half, and most recently said the company demonstrated no path to profitability. A profanity-laced tweet in April drove home his point.

See Also: Citron's Andrew Left Explains His Latest Trades

The Left Perspective

Left defended his take on Wayfair considering “operating loss still growing by greater magnitude than revenue growth [and] merchandising marketing and sales expenses outpacing revenue growth.”

Not only that, but accounts payable (AP), which were up 44.5 percent year-over-year, amounted to half of the company’s total assets (TA) and $150 million more than is cash holdings.

Left also took alarm with customer acquisition costs, which were up 39-percent year-over-year.

“These guys are literally just buying revenue,” he said.

Also of note was a sequential quarterly decline in revenue — the company’s first in three years.

Left pointed to a few unanswered questions from the report, including how Wayfair is sub-categorizing operating expenses, whether that breakdown has changed, what is happening in general and administrative expenses, and why there is an increase in deferred revenue.

“[A] 40 percent year-over-year increase in ‘prepaid and other expenses’ raises the question if they are capitalizing expenses — a double negative for a positive,” Left said. “[Wayfair is] providing all their ‘improvement’ in negative operating cash.”

Despite the beat in sales and growth in customers, Wayfair posted a 17-percent earnings per share miss.

At time of publication, Wayfair shares were trading up 18.6 percent at $60.71.