What happened
Shares of Wayfair (W 5.52%) plunged on Thursday morning, following the release of a disappointing third-quarter report. The online retailer's share prices bottomed out at 9:40 a.m. EDT, diving 24% below Wednesday's closing prices. Two hours later, the stock had recovered to a still-terrible 19% drop.
So what
Wayfair's Q3 sales rose 39% year over year, landing at $1.2 billion and right in line with Wall Street's projections. On the bottom line, adjusted net losses per expanded from $0.54 to $0.65. Analysts had been looking for a smaller $0.46 loss per share. The main culprit behind the surprisingly large net loss was a 40% larger advertising budget.
Image source: Wayfair.
Now what
The home goods wrangler is exploring international growth ideas, starting with modest launches in Canada, the U.K., and Germany. These territories add up to an addressable market of $145 billion per year, or about half of the U.S. home goods market. They could also form a springboard into the larger opportunity of all European countries. Wayfair calls all of these target markets "fragmented," with competitive characteristics similar to the domestic space.
In general, Wayfair is all about top-line growth so far. The company should shift its focus to sustainable profits when the low-hanging growth fruit starts to run out. In other words, it seems premature to panic over an earnings miss at this point -- that's simply not how Wayfair is measuring its own success yet.
Even factoring in Thursday's drastic drop, the stock has still delivered an 88% return over the last 52 weeks. Wayfair investors should be prepared for the occasional jump or plunge as the business model evolves.
