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Key Takeaways for Wayfair Stock
- The home goods market is highly fragmented and Wayfair lacks brand strength
- Wayfair has slim margins but fast inventory turnover
- Wayfair’s logistics network is faster and has less product damage than its peers
Andrew Willis: For many home furnishings, there is no cheaper place than Wayfair (W). And that isn’t necessarily a testament to the quality of the goods, but rather the deal customers are getting.
Wayfair Plays by Pushing Pricing to the Limit
3%... That’s all Wayfair is making on sales, based on where we see adjusted operating margins for the next decade. Senior equity analyst Jaime Katz says the home goods market in North America is highly fragmented and Wayfair stock has no moat - meanwhile, its logistics network is faster and experiences less product damage than its peers. The home furnishings market may be tough, but Wayfair fits right in.
For investors, Wayfair may still be an undervalued bet on high volume, with over 40 million products, from 20,000 suppliers, which can help with that lack of brand power. Low fixed expenses can also be further leveraged going forward, which helps keep prices low – and for customers, that’s still the bottom line.
For Morningstar, I’m Andrew Willis.
Wayfair Bulls Say
- Different brands in the Wayfair portfolio cater across income and age demographics, offering some resilience in cases of economic cyclicality and economic uncertainty.
- Over the last five years, the company has expanded into untapped markets such as Canada, the United Kingdom, Germany, and Ireland. Additionally, international opportunities could provide location and revenue growth and improved brand awareness.
- B2B represents around 10% of sales and targets a $200 billion total addressable market in the U.S. and Europe. This opportunity could grow materially faster than we anticipate.
Wayfair Bears Say
- Low customer switching costs, along with the proliferation of other e-commerce and mass-merchant competitors into the home furnishing category, may bound long-term margin expansion. If Amazon or big-box retailers pursue growth in the market aggressively, it could lead to higher customer acquisition costs.
- Weakness in the housing market could weigh on top- and bottom-line growth, as new homeowners represent a significant portion of home-related purchases.
- Higher promotional activity can create a challenging environment for nearly all types of retailers, including home furnishing firms.
