"While our Retail Sector Head Brian McGough still likes Wayfair as a short idea, it's not at the top of my list right now," says Hedgeye CEO Keith McCullough. "I'm trying to make room for some new/fresh short ideas."
Here's the bearish case on Wayfair from McGough's original stock report on the company:
- "Wayfair has considerably higher penetration in its TAM (total addressable market) than people believe. People – including Management, are using numbers like $200bn-$300bn as an addressable market. That’s just flat-out wrong. We’ve done extensive research on this one, and when all is said and done, we think that the end market is no more than $30bn."
- "Wayfair has about 10% share of its market. That’s 2-3x the share of players like RH and IKEA. There’s absolutely no reason why this should be the case."
- "... Wayfair sells furniture and home goods. The purchasing process for a consumer durable like a set of bunk beds, for example, almost always includes in-store visits as well as online research... But you can’t touch and feel the seven million items sold by Wayfair before you buy. In fact, our research suggests that W’s target consumer has a ‘blind buy’ threshold of around $750. That’s well below the prices listed for furniture sold on its websites."
- "While it might take a while, we think that Wayfair is ultimately headed to zero."