KeyBanc On Wayfair: Powerful Consumer Offering, But Profitability Elusive

While Wayfair Inc W gained significant market share in the third quarter, the sharp slowdown in growth and lack of margin expansion are concerning, according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Edward Yruma maintained a Sector Weight rating on Wayfair.

The Thesis

Although Wayfair’s consumer offering is strong, the last-twelve-month (LTM) revenue figure of $10.3 billion indicates that there’s been no margin improvement, Yruma said in the note.

The company blamed tariffs as the reason for its revenue growth slowdown. Suppliers who are subject to China tariffs have raised wholesale prices, resulting in higher retail prices. Wayfair believes that these higher prices had restricted customer conversion.

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While hoping that the market would rebalance over the next several quarters, management said that the company’s growth could continue to decelerate in the near term. The company has projected below 24% to 26% growth for the fourth quarter.

The analyst said, however, that the impact of tariffs may not be the culprit and he was “increasingly concerned” that Intel’s growth was “entering a more mature phase.”

Yruma further said that margin expansion had been a concern over the past eight quarters and that Wayfair needs a “significant step change” to achieve its long-term EBITDA margin target of 8% to 10%.

Share Action

Shares of Wayfair were up 0.72% to $82.81 at the time of publishing on Friday.