Wayfair: Newly Launched Initiative To Support Share Gain Momentum

Core Viewpoint - Wayfair (NYSE: W) is expected to continue gaining market share as consumers shift towards digital purchases, supported by recent strategic initiatives despite lower-than-expected gross margins in the recent quarter [2][5][6] Financials/Valuation - Total revenues grew 0.4% year over year in 4Q23, slightly above the 0.1% expected by consensus, with US growth at 0.9% and international down 2.7% [3] - Gross margin performance exceeded expectations, coming in at 30.4% compared to the consensus estimate of 30.7%, leading to adjusted EBITDA of $92 million, aligning with a 3% margin [3] - Management expects mid-single-digit percentage net revenue growth for 1Q24, with gross margin projected between 30% and 31% and EBITDA margin in the low-single-digit percentage [3] - FY24 growth is now modeled at only 1% due to adverse conditions, but a recovery is anticipated in FY25 with high single-digit growth expected [4] - A 15x forward EBITDA multiple is applied to FY25 estimated EBITDA of $908 million, suggesting a share price of approximately $90, justified by faster growth compared to peers [4] Market Position and Strategic Initiatives - Wayfair has gained market share for six consecutive quarters, outperforming the overall home furnishings category, indicating a strong value proposition [5] - The company is well-positioned to capture market share due to its digitally native platform, benefiting from the shift in consumer demand from offline to online [5] - Recent strategic initiatives include the relaunch of free white glove delivery and a new tender-neutral loyalty program, aimed at improving customer satisfaction and retention [5][6] - The white glove delivery feature is expected to optimize unit economics and reduce the risk of damaged goods, enhancing customer experience [5] - The loyalty program aims to broaden customer engagement beyond those with Wayfair-branded credit cards, potentially increasing adoption rates [5] Margin Outlook - The long-term gross margin target of 35% remains valid, with expectations of margin recovery as the company scales and benefits from structural operating leverage [5] - Increased shipping times due to disruptions are not expected to significantly impact product availability, and container price increases have been manageable compared to previous years [5]