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Why Wayfair Stock Dropped Today

By Jeremy Bowman - Updated Feb 13, 2020 at 4:42PM

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The fast-growing online furniture seller surprised the market by announcing layoffs

What happened

Shares of Wayfair (W 8.58%) were heading lower today after the online home goods specialist said it was laying off 550 employees, or about 3% of its workforce.

The stock was down 12.7% as of 3:05 p.m. EST on the news.

A living room couch decorated with pillows and blankets.

Image source: Wayfair.

So what

In a statement, Wayfair said, "We continually evaluate the needs of the business and work to increase efficiencies while aligning our teams with the initiatives that drive the greatest impact for our customers."   

As a result, it said it was making organizational changes, and many of the layoffs seem to be within its tech teams. Wayfair also said that the company was still hiring for a number of roles and focused on the long-term growth and success of the business. 

For a growth stock like Wayfair, which has never been profitable, layoffs are often seen as a warning sign as they could signal slower growth or other problems ahead. It's unclear if that's the case here, but Wall Street seems to be interpreting it that way.

In an email to employees, CEO Niraj Shah said the company had grown too aggressively in recent years and needed to correct some inefficiencies, meaning the move should help the online retailer narrow its losses, which have been growing and hit $272 million in the third quarter.  

Now what

Investors will get a clearer picture of Wayfair's current position when the company reports fourth-quarter earnings on Feb. 28. Analysts are expecting revenue to rise 25.5% to $2.53 billion, and its per-share loss to widen $1.12 to $2.64, evidence of how its costs are ballooning. Management may also provide further insight into the layoffs.

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