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Why Wayfair Inc. Stock Tumbled Today

By Jeremy Bowman - Updated Feb 22, 2018 at 12:59PM

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Shares of the home-goods specialist fell as losses expanded in its fourth-quarter earnings report.

What happened

Shares of Wayfair Inc. (W -5.81%) were heading lower today after the online furniture seller posted a wider-than-expected loss in its fourth-quarter earnings report. The market looked past strong revenue growth, instead focusing on the company's bottom-line result and sending the stock down 21.2% as of 10:57 a.m. EST.

A tan living room set with aqua pillows from Wayfair brand Joss & Main, in a light blue room.

Image source: Wayfair.

So what 

The e-commerce home-goods specialist continued to deliver impressive sales growth as revenue increased 46% to $1.44 billion, beating estimates of $1.36 billion. Active customers climbed 33% to 11 million, and average order size jumped from $203 to $229. However, gross margin declined from 24.2% in the quarter a year ago to 23.1%, a sign that competition may be intensifying, thereby bringing down prices. As a result, the company's loss per share expanded from -$0.51 to -$0.83, which was worse than analyst expectations at -$0.53. 

CEO Niraj Shah touted the company's "incredible growth," saying, "Our long-term investing approach and customer-centric mentality continue to pay off as we outpace the shift to online spending in our category and gain significant market share." However, he did not address the widening bottom-line loss.

Now what 

Looking ahead, Wayfair said expected revenue of $1.315 billion-$1.345 billion in the current quarter, up 40%-43% from last year, and ahead of estimates of $1.29 billion, but the company also said that EBITDA could be negative for the first time in a year, indicating that the bottom line will continue to be challenged. 

Separately, Walmart announced that it would launch a new home-goods site, indicating that competition in the industry is heating up. Wayfair's revenue growth is certainly impressive, as the company is on its way to more than $6 billion in revenue this year, but investors are justified in expecting progress toward profitability. After the stock more than doubled last year, it's not surprising to see higher investor expectations.

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