This is a script that Wayfair (W -2.03%) investors should be familiar with by now: The company continued to grow the top line at an impressive clip. But reinvestment in the business once again led to record losses.

The real question that investors have to ask themselves is whether the company's growing market share is truly defensible, or it could evaporate as soon as competition enters and offers lower prices. Some of the details provided by this week's earnings release should help us get a clearer view.

A Wayfair-decorated living room

Image source: Wayfair.

Wayfair earnings: the raw numbers

Before diving into the nitty-gritty, let's take a look at the headline numbers:


Q1 2016

Q1 2017

Year-Over-Year Change


$747 million

$961 million










Data source: Wayfair investor relations. EPS = earnings per share; GAAP = generally accepted accounting principles.

All of these figures came in significantly ahead of Wall Street's expectations of non-GAAP EPS of a loss of $0.58 on revenue of $936 million.

It's also worth looking at increases in three key metrics that I've been singling out in my time covering the company: active customers, revenue per customer, and annual orders per customer.

Growth at Wayfair, 2013-2017. Data sources: Wayfair investor relations and SEC filings.

As you can see, the growth of the active customer base is very encouraging. Almost 9 million shoppers -- typically women between the ages of 35 and 65 with a median household income of $82,000 -- have placed an order over the past twelve months, an increase of 46% from the same time last year.

Increases like that help offset some concerns about slow growth in average revenue per user (ARPU), which has essentially been flat over the past year. Newer users make one big purchase to put them on the company's rosters. Company trend lines show that there's a steep drop-off in purchases after that, which only begins to rise again after 12 to 18 months -- which makes sense, given furniture-buying patterns.

What about the moat?

There's no question Wayfair has a huge market in front of it. CEO and co-founder Niraj Shah described the company's performance and market opportunity, saying, "We continue to gain significant traction across our key strategic initiatives and steadily increase our market share in the $600 billion dollar home category across North America and Europe."

Shah highlighted that the company would continue to aggressively reinvest in two broad categories: international expansion, and delivery infrastructure. That helps explain why -- though revenue was up 29% in the quarter -- investments were up 34% in merchandising, marketing and sales, and 53% in technology and operations.

The strategy is clearly working to get customers in the door, but locking in those customers is the key. One very interesting tidbit Shah shared was that "investment in a proprietary logistics network customized for furniture and decor is paying off as we continue to increase sales conversion through faster delivery and greater customer satisfaction."

This isn't a far cry from the way that (AMZN -0.68%) -- the 800-pound gorilla that could one day make aggressive moves into the niche -- built its empire. It spent billions on a network of over 100 fulfillment centers domestically that guaranteed lightning-fast delivery. Once established, competing with Amazon became prohibitively expensive.

It's worth noting, too, that repeat customers placed a whopping 60% of all orders in the quarter, up from 55% a year ago. Clearly, there's affiliation with Wayfair. Right now, no other retailer is focused on e-commerce in home furnishings at the same scale.

The big question is this: If larger competitors enter the sphere (ahem, Amazon) and offer equal or lower prices, would Wayfair's customers remain as loyal?

Management and investors are betting that the answer is yes, and use this to justify the company's aggressive reinvestment. Time will tell if this ends up being a shrewd approach, but for the time being, it's clearly winning over more customers.