You can’t blame Wayfair investors for complaining about déjà vu on Friday: another slowdown in revenue on the horizon, another stock plunge.
This time, the online home goods retailer’s stock fell some 10 percent, to close at $63.21 a share. This wasn’t as bloody as that 19 percent drop on Halloween, the last time Wayfair disclosed its quarterly earnings and projections. But the decline still underscores the headwinds the company faces. (The stock has tumbled by more than 60 percent over the past 12 months.)
Wayfair was once a relentless hiring machine. Not anymore. Chief executive Niraj Shah and his team are turning off the spigots. No more growth at seemingly any cost. The most visible example: the decision to slice 550 jobs earlier this month, a 3 percent reduction from a workforce of roughly 17,000 at the time. The Boston headquarters offices, where 350 people were shown the door, took the biggest hit.
Now this: Wayfair expects revenue to grow by 15 to 17 percent in the current quarter that ends next month. What’s wrong with that? Well, consider that the company on Friday reported year-over-year net revenue growth of 26 percent — to $2.5 billion in the last quarter. Yes, it’s in line with previous guidance. But that was still the slowest increase in at least five years, as Emory University marketing professor Dan McCarthy notes.
This slowdown would be easier to accept if Wayfair turned a profit. That hasn’t happened yet, not once in the five-plus years since the company became publicly traded. And the losses approached $1 billion in 2019, on some $9 billion in revenue. That’s almost double the loss of the previous year. Chief financial officer Michael Fleisher on Friday promised positive earnings in the US (as measured by EBITDA) sometime in 2021. But that long-awaited goal isn’t quite the same as being profitable.
Some of the sales slowdown is intentional. The brakes are being applied to hiring, and to marketing, to get closer to the promised land of profitability. Revenue is bound to decelerate.
Peter Keith, an analyst at investment bank Piper Sandler, warned Shah on the earnings call Friday that there will be plenty of skepticism about pulling back on ad spending, and the impact on revenue.
Shah responded by expressing confidence in the “hard trade-offs” his team is making. Pulling back in certain areas could limit the company’s traffic. But Wayfair can also be creative and targeted in its marketing, too.
Another skeptical-sounding question came from Jonathan Matuszewski, an analyst with Jefferies & Co. He asked about those layoffs, and whether the company was putting guardrails in place to prevent excess hiring in the future.
Steve Conine — who shares the cofounder and cochairman titles with Shah — said people were let go because they worked on projects that were no longer deemed a priority. But now, Conine said, Wayfair is focused on the “right priority things.”
Then there’s China. Long before the coronavirus struck, investors fretted about Wayfair’s China ties. About 60 percent of Wayfair’s products were once imported from Chinese factories, so trade-war tariffs drove up prices in many cases. Shah said Wayfair’s suppliers have been steadily sourcing from other countries, bringing that percentage down to the “low 50s.” There’s no question the coronavirus will cause disruptions, Shah said, but he noted the geographic diversity of Wayfair’s supply chain.
McCarthy, the Emory professor, said Wall Street gave Wayfair a pass for years because revenue growth had been so strong. Many investors saw a new Amazon taking shape; they were patient with losses when they thought they were betting on a company that could dominate an industry. But McCarthy said Wayfair will need to be more efficient going forward. That could translate into more marketing cutbacks, he said, more layoffs, or both.
This trajectory will have implications for Boston’s economy. We’re talking about one of the city’s biggest private employers: Wayfair leases more than 1 million square feet in the Back Bay, and employs more than 6,000 people in the city. Despite the layoffs, a spokeswoman said Wayfair continues to hire.
Fleisher offered this reassurance on the call with analysts: Wayfair is just sharpening its execution, and its focus. The company, he said, is already a proven winner. Judging from how the stock is doing on Wall Street, Wayfair still has some convincing to do.