What happened

Shares of Wayfair (NYSE:W) were taking a dive today after the online home furnishings seller posted a disappointing third-quarter earnings report. Losses widened, and it offered weak guidance for the fourth quarter. The stock was down 16.7% as of 12:21 p.m. EDT on Thursday.

So what

Wayfair continued to show off strong revenue growth with sales jumping 35.9% to $2.31 billion, which topped estimates of $2.27 billion.  Active customers also rose 37% to 19.1 million, though per-customer spending on the platform was essentially flat. Gross margin improved from 23% to 23.4%, showing that the company was able to deliver sales growth without cutting prices and that it has withstood pressure from tariffs. But CEO Niraj Shah called out short-term volatility related to new import taxes.

A couch with a lot of pillows on it in a living room

Image source: Wayfair.

The company spent aggressively in other areas, as costs for selling, operations, technology, general, and administrative expenses jumped 58.7% to $426.5 million. As a result, its adjusted loss per share widened from $1.28 to  $2.23, which was worse than expectations at $2.10.

Shah defended the increased costs and investments in long-term growth in expanding its logistics network, saying, "Our business continues to benefit from meaningful long-term investments that directly and dramatically impact the customer experience further propelled by a massive structural shift in shopping behavior from offline to online."

Now what

What also weighed on the stock was weaker-than-expected guidance for the key holiday quarter. For the fourth quarter, management sees revenue of $2.48 billion to $2.525 billion, indicating growth of just around 25%, which is significantly below the average analyst projection at $2.67 billion. Some of that weakness may be due to tariffs.

The stock slipped to near 52-week lows on the news and is now down about 50% since its highs this spring, as investors seem to be questioning the growth story. The company, founded in 2002, has never turned a profit, and investors have been growing more skeptical of money-losing companies since the WeWork collapse.

In addition, the kind of business it operates, direct online sales, has proved to be a difficult model for generating a profit. The holiday quarter will be a key test as Wayfair needs to keep delivering strong top-line growth if investors are going to forgive its losses.