Rapid sales growth is great, but when there's no profitability -- and no real indication for when it will show up -- investors can get impatient. That's basically what has been happening with shares of Wayfair (NYSE:W): Though sales have grown rapidly in the past two years, the stock is in about the same place as it was in mid-2015.

The company's most recent earnings report, released Thursday, was no exception. While revenue growth was strong, losses multiplied rapidly. And management made it clear that investments in international operations would be continuing -- making the road to profitability even longer.

A newly designed kitchen layout.

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Wayfair earnings: The raw numbers

On both the top and bottom lines, Wayfair came in ahead of expectations.


Q4 2016

Q4 2015

Year-Over-Year Change


$985 million

$741 million










Data source: Wayfair investor relations.

I have been following Wayfair for a number of years and am familiar with management's plan for long-term success: Spend tons of money now to gain market share and build out the platform distribution network necessary to solidify the company's standing in the industry. Over time, these investments should yield success.

Below, I've included three metrics that I consider to be most important, and how they've changed since the beginning of 2013.

Data source: SEC filings.

By far, the most impressive number for shareholders is the growth in the company's membership rolls. Active customers topped 8.3 million -- a jump of almost 1 million in just three months -- and up an impressive 54% from the same time last year. Clearly, the company is gaining traction here.

At the same time, the average revenue per customer fell for the first time sequentially. Bears can look at this and say that it's evidence that Wayfair is running up against a growth wall. Bulls will be quick to point out that when membership swells like it did this holiday season, new customers make up a bigger percentage of the base than is normal, and these customers often spend less than more seasoned Wayfair shoppers.

The profit conundrum

Company founder and CEO Niraj Shah made it clear that the company has no plans to take its foot off of the spending gas. "Our largest investment is in our international business in Canada, the United Kingdom and Germany," Shah said in a press release. "In the U.S., we are also investing in our proprietary logistics network, including CastleGate and the Wayfair Delivery Network, as well as in newer categories."

To be fair, direct sales via the company's international platform were impressive. They jumped 218% to $100 million during the fourth quarter, representing over 10% of all sales. But international adjusted EBITDA losses also increased, from negative $15 million to a loss of $24 million.

The bottom line is this: The all-important direct sales revenue grew 40%, but expenses jumped 47%. Chief among those jumps was the division devoted to operations, technology, general, and administrative expenses. Spending jumped 79% to $82 million during the fourth quarter, canceling out over one-third of gross profit.

Looking ahead, management said that direct sales revenue is expected to grow 25% to 28% during the first fiscal quarter of 2017. Those are much slower numbers than analysts were expecting.