2 Reasons Why Wayfair Is Still A Short

Takeaway: W continues to invest in an addressable market much larger than we believe it will ever recognize. Starting to see cracks in the foundation.

Editor’s Note: Below is an institutional research note on Wayfair written yesterday by Hedgeye Retail analysts Brian McGough and Alexander Richards. To access our institutional research email sales@hedgeye.com.

 

2 Reasons Why Wayfair Is Still A Short - wayfair 8 10

 

The -20% move today is a nice near-term win, but let’s be perfectly clear about one thing…this short call is far from over. We saw a few cracks in the foundation within the numbers printed this morning and we think there’s considerably more downside risk embedded in this story as the company continues to invest in an addressable market that is much larger than our research has us convinced it will ever recognize. And ever is a long time.

  1. This is no longer a US story as the company has clearly pushed international expansion up higher in the queue. To date, Wayfair is present in four countries and the management team has now talked to roughly a $180bn market opportunity between the US and Western Europe. What that tells us is the company isn’t done funneling dollars across borders in order to diversify its revenue base. Meaning a bigger drag on earnings for longer.
  2. Over the past 12 months, Wayfair has rung the register on $2.7bn in the US. The current market share on Wayfair’s math is 13%, or looked at another way, 4% of its long term TAM. That still leaves a considerable amount of share to be captured in the US if you believe Wayfair’s math. We don’t think the outlook is as opportunistic for W, which based on our work suggests that the company has a $27bn TAM with upside to $45bn vs. the company at $90bn. That tells us that Wayfair is spending up now to supplement an unrecognizable US end market.