This article is proudly sponsored by Wee’s Cozy Kitchen, one of Austin’s premier Asian dining establishments!

About Wayfair

“Wayfair, you’ve got just what I need.”

Recognize the jingle?

We do.

Even though that’s the case, we hardly have the slightest clue as to what the company actually does. All we vaguely know is that it has some footing in the e-commerce and online retail space and that it has a somewhat catchy jingle.

That’s pretty much it.

In reality, we were sort of right but there’s a little more worth knowing about this company before we get into its core financials.

Namely, while it is indeed an e-commerce platform, it primarily specializes in selling furniture items as well as other home goods through its site.

It’s like Amazon but it focuses on a few specific products and household categories.

Additionally, the company doesn’t focus on selling its own products, but rather is seemingly intent on being a platform through which a variety of external manufacturers can sell their own products. Thus, the main way in which Wayfair generates its revenue is through buying these items in bulk and selling them at a profit, per each unit that is sold.

It’s sort of like Costco in that regard, but fully online, although the company, of course, does have its own distribution centers.

All that to say, Wayfair isn’t just an online platform but to us, really, a logistics network as well given its physical inventory centers.

Now, it’s about that time that we get a little more familiar with the company’s finances so as to figure out whether or not this company’s stock is worth purchasing and holding onto for years, if not decades to come.

Wayfair’s stock financials

At the time of this publication, Wayfair has a market capitalization of $3.91 billion, a share price of $35.71, no readily listed price-to-earnings (P/E) ratio and does not presently issue an annual dividend to its shareholder base.

So far, so not surprised as this company, like Amazon, is likely burning through lots of cash in order to both fuel its growth while also simply sustaining its operations and thus not reporting any earnings (or specifically, a price-to-earnings ratio) because all of the potential earnings are being put right back into the business, which we certainly have no issues with.

Moving right along to the company’s balance sheet, Wayfair’s executives are tasked with handling and managing $3.58 billion in total assets as well as $6.13 billion in total liabilities. 

This sort of stinks, but to a certain degree, we expected it.

Specifically, this company was destined to have a lot of inventory tied up and other accumulated logistics-related expenses, however, this is a bit much from our perspective.

Namely, to have just about double the amount of total liabilities relative to total assets is nearing overleveraged territory, which is a potential cause for some sort of necessary future restructuring or bankruptcy filing, especially as consumer spending continues to pull back given the current state of the economy.

This isn’t exactly the best time for Wayfair to be alarmingly total liability-heavy.

Shifting gears to the company’s income statement, Wayfair’s total revenue between 2018 and 2020 displayed excellent growth, sitting at nearly $6.8 billion and subsequently rising to just north of $9.1 billion the following year to its 2020 figure of around $14 billion.

Here comes the bad news.

Following 2020, Wayfair’s total annual revenue has steadily dipped down in 2021 and 2022 to $13.7 billion and $12.2 billion, respectively. 

For a relatively new company, we don’t like seeing total annual revenues drifting downwards, however, we understand that consumer spending, especially on luxury furniture items is likely falling and thus bruising Wayfair’s reported total annual revenues.

Frankly, we’re not going to get too hung up on the company’s total annual revenue softening in recent history, but it isn’t something that makes us thrilled moving into a deepening economic recession.

Onto the company’s cash flow statement, the onset of COVID-19 was oddly enough a boon to the company (in terms of net income) in 2020.

This is one of the perks of being an e-commerce company, largely regardless of what you’re selling.

Specifically, Wayfair’s net income (according to the cash flow statement) experienced its only positive year (within the last five years) in 2020, at $185 million.

This can more than likely be attributed to the heightened amount of online shoppers and thus sales generated during the onset of COVID-19, as many consumers across the United States and the globe were compelled, or even in some cases forced, to stay in their respective residences and order goods, services and other items (such as furniture) online.

As alluded to before, however, two years prior and two years after 2020, Wayfair’s net income was sorely negative, its worst year being its most recently reported year, according to TD Ameritrade’s platform, of around -$1.3 billion (reported in 2022).

Again, we fully expected this company to have copious amounts of negative net income, however, if it continues escalating to more and more negative levels at this current rate, especially given the current overall shape of its balance sheet, this company could easily find itself in hot water. 

Wayfair’s stock fundamentals

From the perspective of the company’s trailing twelve month (TTM) net profit margin, Wayfair’s is far from impressive, but again, sort of expected. 

For instance, according to TD Ameritrade’s platform, it is currently -10.89% compared to the industry’s average of 8.13%.

We suspect that excess inventory and a weakening consumer are largely to blame for this, which is just a business vulnerability that is tough for Wayfair to get around.

In addition to its muted, negative TTM net profit margin, the company’s TTM returns on both assets and investment(s) are resoundingly negative at the time of this writing, tucked away at -32.66% and -68.95%, respectively.

Obviously, not all that encouraging.

Should you buy Wayfair stock?

It is our viewpoint that Wayfair is slowly but surely wrapping itself up in an inventory crisis, extending its total liabilities upward and inevitably eating into its already dastardly thin margins.

Of course, this isn’t a desirable state of being during times of economic boom and prosperity, but it is even worse given the current frothy, frail and uncertain state of the economy and the consumer for that matter.

The e-commerce space is flooded with companies specializing in the sale and distribution of niche items and categories, and to us, Wayfair is certainly a leader in the sector but its financials are far from compelling enough at the moment to warrant our team getting excited about its stock.

Given all of this information, we deem it best to give Wayfair’s stock a “sell” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.