Wall Street has had a bit of a love-hate relationship with Wayfair. Lately, though, the love has been hard to find.
Case in point: The online retailer’s stock plunged nearly 19 percent on Thursday, to close at $82.23 a share after the company reported third-quarter earnings. Earnings? More like losses, another round of them. Wayfair bled $272 million in the three-month period, nearly double the size of its loss a year ago.
That’s not necessarily what spooked investors this Halloween. This is a company, after all, that has not reported a quarterly profit since its initial public offering five years ago.
Based on the analyst chatter, the chief concern seems to be sales growth — and how it’s slowing down. Revenue was up 36 percent, year over year, as Wayfair marched on a steady expansion path. Sounds great, right? But Wall Street looks ahead, not behind. Wayfair chief financial officer Michael Fleisher shared the fourth-quarter outlook with analysts on a conference call: growth of about 25 percent, year-over-year, to $2.5 billion. Solid, but not quite what analysts had expected for Wayfair’s Christmas quarter.
So what happened? Blame China — or, more precisely, this country’s trade fight with China. About 60 percent of Wayfair’s products are sourced from US-based suppliers that import products from China factories, and all of them now carry some form of tariff, or will soon.
Wayfair execs, to their chagrin, have already noticed slower-than-expected sales, as these tariffs show up in the prices that customers see. Fleisher said those shoppers are taking more time to weigh options before making purchasing decisions. Fleisher said the company considers this a short-term trend, one that will be limited to a couple of quarters.
Does Wall Street believe it? Not judging from the stock-price plunge. Wayfair remains one of the most successful companies to emerge from Boston’s startup scene in the past two decades. But its share price has fallen by more than 50 percent since peaking in March. Add it up, if you dare. That equals roughly $8 billion — half the company’s market value — that has been wiped away in less than a year.
Cofounders Steve Conine and Niraj Shah talked up the good stuff during the conference call: the rapid rise of Wayfair’s plumbing-goods business, the “Buyfair” software developed in house to make the supply chain more efficient, the first true brick-and-mortar store. Traffic at that Natick Mall store, by the way, has exceeded expectations. But the mall shop is a marketing tool, not a way to directly sell many sofas and shelves.
Analysts on the call were far more interested in talking about China, and peppered the executives with tariff questions. Another point of concern: signs that it’s getting more costly to bring new customers into the fold.
Sucharita Kodali, a retail analyst at Cambridge-based research firm Forrester, thinks investors may be overreacting a bit. Revenue growth is still strong at Wayfair, after all. Part of the problem, she said, is that fast-growing tech companies without profits (think WeWork and Uber) have lost some of their appeal.
Then there are the bigger questions around Amazon and if that seemingly unbeatable juggernaut will decide to aggressively go after Wayfair’s turf. It hasn’t happened yet. But Kodali said the potential for an Amazon home invasion hangs like a dark cloud over the stock.
Whether Wayfair has a blue Christmas matters to its ever-increasing army of employees: more than 16,000 strong, including 6,000 or so in Boston. Wayfair continues to hire at a breakneck pace, with 1,500 people joining in the last quarter alone. In Boston, the number has grown by some 20 percent since the end of 2018.
The company is expanding its Back Bay headquarters, with help from $31 million in state tax incentives awarded nearly a year ago. Part of that deal: a promise to open a 300-person call center in Pittsfield.
They heralded Shah as a hometown hero out in the Berkshires when the chief executive returned to the city where he grew up for the grand opening a few weeks ago.
That tax-credit package represented a big bet on Wayfair’s future in the state as an employment anchor. While there’s still plenty of time for that bet to pay off, a profitable quarter would certainly help the odds.