Will Wayfair (W) stay profitable after markets reopen post-COVID?

Being an exclusive e-commerce marketplace came in handy for Wayfair Inc. (NYSE: W) when households across the country took to home renovation to beat the shelter-in-place blues. While the unique business model perfectly aligns with people’s changing shopping behavior, the current trend should continue if the company is to sustain the recent turnaround.

The recovery of Wayfair’s stock from the multi-year lows of March, when markets were battered by the virus outbreak, was one of the quickest Wall Street has witnessed – a ten-fold increase since then. A few weeks ago, the stock offered a buying opportunity when it retreated to the pre-peak levels. The company once again came under the spotlight when the shares gained as much as 7% early this week and traded above the $270-mark, after a rating upgrade.

The Virus Effect

While the future prospects look bright, it will depend on how the COVID situation evolves in the coming months, especially in the wake of the positive developments on the vaccine front. There is speculation that once the pandemic is contained the shopping patterns would revert to the pre-crisis state, bringing the ongoing retail boom to an end. Wayfair carries moderate buy rating, with a price target that represents a 17% upside. The stock is a good long-term bet because it is almost certain that the future of home furnishing is digital.

Also read: At Home Group Q3 2021 Earnings Call Transcript

We are laser-focused on the huge Home category TAM, reinforcing our winning platform for both customers and suppliers and on effectively balancing growth, profitability, and high ROI investments for many years to come.

Michael Fleisher, chief financial officer of Wayfair

After languishing in the negative territory for an unusually long time, the Boston, Massachusetts-based firm turned profitable in the last quarter. It extended the turnaround in the third quarter aided by a 51% growth in customer base that pushed up revenues by 67% to $3.8 billion. The key numbers also exceeded the forecast. Besides the spike in online orders, the improvement in margin performance can be attributed to the expansion of fulfillment facilities.

Holiday Sales

It is estimated that sales continued to grow in the current quarter, with the holiday season catalyzing do-it-yourself activities. But the recent performance of the stock is not very encouraging, which can be linked to the fears that traffic to the site would decline once normalcy returns to the market, which looks imminent given the vaccine rollout. Nevertheless, experts are of the view that the shift to online retail is going to stay, irrespective of the fluctuations in the market.

From Wayfair’s Q3 2020 earnings conference call:

“We would expect holidays to be significant, but it’s hard to know exactly how significant because the concept is that people are staying at home. If they’re likely to stay at home a lot through the winter and into next year, if they are entertaining just their own close family and they’re not traveling, all of these things bode well for investment into the Home, further investment into the Home.“

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Read management/analysts’ comments on Wayfair’s Q3 earnings

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As 2020 comes to an end, Wayfair’s stock is trading about 180% above the levels seen at the beginning of the year, outperforming the broad market. However, the shares traded lower during Wednesday’s regular session.