One of last week's biggest winners was Wayfair (W 10.66%), moving 20.3% higher after posting better-than-expected financial results. Profitability remains elusive for the online furniture retailer, but it's hard to argue with its heady growth at a time when grabbing market share is the name of the game.
Wayfair revenue surged 46% to top $1.4 billion in the first quarter, fueled by a 48% spike in direct retail revenue. Wall Street was holding out for just $1.36 billion on the top line. There's a big price to pay for that kind of growth, and we see it on the bottom line where Wayfair's adjusted loss of $0.91 a share was slightly more than analysts were targeting.
Wednesday morning's strong revenue growth and better-than-expected guidance for the current quarter helped investors forget about the miss on the bottom line. The stock has gone on to move sharply higher in each of the four trading days since announcing the results.
Image source: Wayfair.
The stock is no recliner
Furniture shoppers keep flocking to Wayfair. There were 11.8 million active customers as of the end of March, 33% more than it was serving a year earlier. Customers are ordering more and they're spending more. The online platform appears to be doing right by its existing customers as repeat shoppers placed nearly two-thirds of the orders on Wayfair during the quarter.
Analysts warmed up to the report. Akshay Bhatia at BofA/Merrill upgraded the stock from neutral to buy. He was impressed by Wayfair adding 805,000 net new customers during the first three months of the year, above what he was modeling. Wayfair scaling so quickly hasn't been cheap, but it will make it that much harder for a competitor to catch up in the future. He is bumping his price target up to $95.
Peter Keith at Piper Jaffray is also boosting his price goal, going from $92 to $96. With all key performance indicators improving there is not much to worry about in the near term when it comes to rivals poaching its growing Rolodex.
Laura Champine at Loop Capital stuck to her $87 price target, but she is reiterating her buy rating on Wayfair. She was encouraged by the number of customers it added relative to its advertising expenditures, easing fears that the dot-com darling is overspending on customer acquisition costs.
It wasn't just the bulls raising their price goals. Tom Forte at DA Davidson is lifting his target on the stock from $55 to $60. He tips his hat to Wayfair's healthy quarterly performance and the upward revision of its full-year outlook, but he's sticking with his bearish underweight rating.
Wayfair has been a beast for investors. The stock more than doubled last year, and last week's rally has pushed this year's return back into positive territory. The stock remains well below February's all-time highs, but if it can keep stringing a few quarters of strong sales growth together and start inching its way toward profitability, it should continue to be a market winner.
