Description

We’re pitching Wayfair (W) as a long, it’s a pretty simple idea, and we think it’s a multibagger  from here to our 2026 target of $120.  This is the thesis in a nutshell:

• The furniture category is bombed out with spending on a real basis at levels not seen since the 1980s

• It appears we’re at the beginning of a rate cutting cycle, this will benefit existing home sales and high ticket consumer discretionary purchases 

• Wayfair is a share taker within the furniture space

• The management team found religion as it relates to their cost structure starting in 2022, even at these anemic category volume levels the business is FCF breakeven

  • To this point, they indicated at a sell side conference last week that 2025 EBITDA would grow even if the category declines continue

• Most of the other rate sensitive comps are at, or close to, their 52 week highs (Z, RDFN, MAS, SWIM, etc, etc), Wayfair has been a laggard thus far

• Our 2027 non-GAAP EPS estimate is ~$6.00, the multiple is debatable but 20x seems reasonable for a profitable secular winner that will be develering, etc

First, for those who are unfamiliar with Wayfair it is among the largest furniture marketplaces online.  They connect ~21k suppliers w/their ~22m customers, the average spend per order is ~$330 and the average annual spend per customer is ~$550, not super low but not a $14k RH couch either.  There is a ton of share opportunity going forward, they only have a 2% share of the market, for context the stock was the same price in 2015 as it is today and they had 0.7% share back then.

The Cycle

• As the above chart shows after the COVID bubble the burst has more than eliminated the pull forward phenomena, and spend per household sits now at levels not seen in decades

  • Indeed, Wayfair’s revenue growth has been negative for close to three years at this point

• Our view is furniture is more closely tied to existing home sales than most industry participants and management teams care to admit, if we’re at the beginning of a rate cutting cycle it should spur housing activity and the spending that goes along with it

Wayfair is a share taker

• This just matters for the multiple the stock should be trading at (cyclical vs secular growth…), the charts below just illustrate how online is taking share w/bricks and mortar and Wayfair’s share growth vs the category and peers

Management has seriously rightsized the cost structure

• The company has taken ~$2B in gross cost out of the business since late 2022 (after targeted reinvestment this is less….), this has allowed them to grow EBITDA in both 2023 and 2024 despite negative revenue growth

• It’s important to note that mgmt stated at a sell side conference last week that they have plans for further actions that would enable EBITDA to grow in 2025 if the industry doesn’t turn

• Once the cycle turns this should increase the leverage they get out of their fixed cost base 

The stock has lagged peers

• The below charts are pretty self explanatory but Wayfair has lagged both the furniture peers in the first graph and the other high ticket rate sensitive plays in the second chart

Numbers and valuation

• Our EPS estimates for 2025/2026/2027 are $2.15/$3.95/$6.05 and we think 20x the $6.05 pulled back a year is reasonable which gets us to the $120 target

Risks

• They are levered, $3B in gross debt, $1.3B in cash, on $500m of 2024 EBITDA

• Trump’s 60% China tariffs if he is elected

  • Although Wayfair would be at a relative advantage to peers since they are more of a pass through model

• The rise of Temu and Shein…

  • But it looks like the White House is about to lower the “de minimus” loophole significantly which would eliminate the cost advantage they currently enjoy

• The economy goes through a hard landing and furniture spending falls further

Catalyst

-rate cuts

-category improvement

-proof of leverage in the model