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Why Wayfair Stock Soared 38% in May

By John Ballard – Jun 3, 2020 at 4:18PM

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Investors are optimistic that sustained profits are right around the corner for this fast-growing home goods seller.

What happened

Shares of Wayfair (W -5.38%) gained 38.3% in value last month, according to data provided by S&P Global Market Intelligence. For perspective, the S&P 500 index returned 4.53% last month. 

Wayfair delivered a strong earnings report on May 5 that validated investors' expectations that the shelter-in-place mandates were driving more people to shop online.

A spacious living room.

Image source: Getty Images.

So what

Investors were already anticipating strong results after Wayfair issued a business update in early April when management said it expected to meet or exceed previously issued guidance. But the actual results were still better than investors' expectations, which sent the stock soaring in May, even after a sharp ascent in April. 

Here are the highlights of the quarter: 

  • Revenue increased to $2.3 billion, up 19.8% year over year.
  • U.S. net revenue increased 19.1% year over year.
  • International net revenue increased by 23.7% year over year.
  • Generally accepted accounting principles (GAAP) net loss widened to $285.9 million from $200.4 million in the year-ago quarter. 

In a statement, CEO Niraj Shah said:

Millions of new shoppers have discovered Wayfair while they shelter in place at home, and we are seeing strong acceleration in new and repeat customer orders across almost all classes of goods and across all regions.

Now what

The key investment thesis for Wayfair has been its ability to gain wallet share of home-goods spending as the industry shifts to e-commerce. Not only is the COVID-19 pandemic accelerating that digital shift, but investors also seem to be encouraged by Wayfair's progress toward profitability, something it hasn't delivered to investors in recent years. 

On that note, during the conference call, Shah said, "All incremental revenue will be additive, and we would expect it to create significant additional profitability this quarter." 

Wayfair now expects to generate positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second quarter. This has investors high on this growth stock, since now Wayfair offers both robust top-line momentum and potentially expanding profit margins.

  

John Ballard owns shares of Wayfair. The Motley Fool owns shares of and recommends Wayfair. The Motley Fool has a disclosure policy.

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