Wayfair shares surged 7.2% on Tuesday as the online home goods retailers reported stellar earnings driven by unprecedented demand amid the pandemic.
The online retailer posted an adjusted EPS of $2.30 in 3Q20 compared to an adjusted loss per share of $2.23 in 3Q19. Wayfair’s (W) adjusted EPS was almost three times ahead of analysts’ estimate of $0.80. The impressive rise in the bottom line was driven by a 66.5% growth in revenue to $3.84 billion. Analysts were expecting revenue of $3.65 billion.
Consumers have been spending more on home goods and furnishings as the global lockdowns have increased the time people spend at home. Also, the pandemic has boosted e-commerce sales. Both these trends together have helped Wayfair. The company had 28.8 million active customers in its Direct Retail business as of 3Q end, implying a 50.9% Y/Y growth. Also, its repeat customers placed 71.9% of total orders in 3Q20, compared to 67.3% in 3Q19.
Wayfair did not provide any specific future guidance but on the conference call, the company stated that quarter-to-date, its 4Q gross revenue growth is trending at about 50% Y/Y.
Wells Fargo analyst Zachary Fadem acknowledged the company’s strong 3Q performance but reiterated a Hold rating. The analyst explained, “W’s execution has certainly been impressive during the pandemic, with active customer growth exceeding 50% (for the first time since FY16) and repeat customers representing 72% of orders (an all-time high) key drivers of outsized share gains and a much larger EBITDA margin inflection than most expected.”
“Considering these dynamics, we believe W’s YTD share performance (+201% YTD vs. +4.8% SPX) makes sense; but as we look to FY21, NT [near term] catalysts appear to be waning, category promotional activity is growing and we expect trends to inflect negative as early as Q2.” (See W stock analysis on TipRanks)
The Street is cautiously optimistic about Wayfair. A Moderate Buy analyst consensus is based on 14 Buys, 10 Holds and 5 Sells. With shares advancing a whopping 204% year-to-date, the $310.40 price target implies more modest upside potential of 13.2%.
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