Wayfair (W 4.89%) just closed an incredible fiscal year in which it added $5 billion, growing its sales base by 55%. The online retailer also achieved net profitability for the first time while setting records around customer satisfaction and engagement.
There might be a bigger runway for further gains from here, though. In a conference call with Wall Street analysts, and in a letter to shareholders, CEO Niraj Shah and his team explained why they believe Wayfair can improve on the 2% market share Wayfair currently controls in the $800 billion home furnishings category.
Let's take a closer look.
The bigger picture
"The opportunity in what we are building is so much greater than any single period. It seems more important than ever to think in years rather than quarters." -- Wayfair CEO Niraj Shah
As impressive as the short-term growth picture has been (the active customer base jumped 54% in 2020), Wayfair has much bigger goals in mind. The industry is massive and the online segment is growing quickly. There's room for many more years of outsized gains, too, as e-commerce shopping in the niche expands from its 21% level today to the 50% that executives see as likely.
If Wayfair can continue gaining market share in that period, the company could achieve about eight times its 2020 sales base, equating to an additional $100 billion of annual revenue a decade from now.
"In 2020, we proved out our path to profitability, and we have now firmly demonstrated our ability to grow strongly and profitably." -- Wayfair CEO Niraj Shah
Wayfair had aimed to achieve break-even for the first time in 2020, and the pandemic certainly assisted in that goal. Net income landed at $185 million, compared to a loss of nearly $1 billion in the prior year.
Some of that improvement should reverse itself as the COVID-19 demand surge settles down over the next few quarters. But Wayfair is aiming to maintain profitability from here on out. It has also raised its long-term margin outlook and now believes it can break into double digits as the sales base grows and efficiency expands across the fulfilment network. "We have confidence...margins will grow significantly over time versus our original target," Shah said.
Bumpy times ahead
"As we look ahead to March, we will almost certainly comp lower as we will start to [compare sales] over a very complex moment, particularly the initial COVID period last year when there was an incredible spike in demand from existing and many, many new Wayfair customers." -- Wayfair CFO Michael Fleisher
The next few quarterly reports could be some of the most volatile that shareholders have seen in years, given how wildly demand fluctuated each week in 2020 starting in early March. February has been showing a roughly 50% increase, year-over-year, but executives don't expect that relative surge to continue heading into March.
The good news is that Wayfair has growth momentum, and plenty of cash to help it ride through any volatility ahead. Investors will get a better idea of the 2021 outlook when management issues the first-quarter results in early May.