Wayfair (NYSE: W) is booming in 2020 as consumers spend more money to improve their homes. The company’s Q3 earnings report revealed that the company earned $1.5 billion in revenue, which increased by 66% compared to last year. The company's net income reached $173 million in the period. The company’s success impressed inventors — shares rose to $259 at the start of the week to $297 by the November 5 market close.
The Amazon of Home Improvement
Established in 2002, Wayfair is an ecommerce company that focuses on home improvement and furnishing products. Like Amazon, Wayfair operates in multiple countries, including the United States, Canada, Germany, Ireland, and the United Kingdom.
Millions of new customers. Wayfair's direct retail business now has 28 million active customers, a 50% gain over last year. In contrast, Amazon Prime has 150 million members, a proxy measure for Amazon’s most active customers.
Customer loyalty is high. Repeat orders are an essential signal of customer loyalty. By this measure, Wayfair is doing very well. Repeat customers placed 71% of all orders in the third quarter of 2020.
Mobile ordering is booming. Mobile orders now account for a majority of the company's revenue. In Q3 2020, mobile orders accounted for 60% of orders, up from 53% in the third quarter of 2019.
Large cash reserves. Like other technology companies, Wayfair is significantly increasing its cash reserves. In Q3 2020, the company had $2.4 billion in cash compared to less than $600 million in Q3 of 2019.
International Revenue Lags Behind the US
In Q3, Wayfair earned $3.274 billion in net revenue in the United States, 85% of total revenue. International revenue in Q3 was $564 million or 15% of total revenue. The international segment's revenue is still growing but much slower than the US segment.
In the first nine months of 2020, Wayfair generated $8.9 billion in revenue from US customers, up from $5.6 billion in the same period of 2019. The international segment grew to $1.5 billion in nine months ending September 2020, compared to $968 million in the year before.
Way Day: Wayfair’s Answer to Prime Day
In recent years, Amazon’s Prime Day sales have become a way to generate more excitement and purchases. Wayfair uses a similar promotional strategy called Way Day. On Way Day, the company offered price reductions on more than 200,000 products. Like Amazon, Wayfair has also offered limited-time flash deals. The event ran for two days in late September 2020. Due to delivery and logistics timing, this promotion’s full impact will be reported in the fourth quarter.
Spending Per Customer Is Falling
Wayfair's business may be shifting toward a less affluent customer. As the company added millions of new customers in 2020, the average amount spent per customer has fallen. In the first nine months of 2020, the average order value was $235, compared to $248 for the first nine months of 2019. Further, the company reported a $255 average order value for the second quarter of 2019.
Several factors may drive the fall in average spending per customer. Many American households received a $1,200 stimulus check earlier in the year. Negotiations for additional stimulus continue in Washington DC. Also, customers may have spent more on higher-priced items earlier in the year.
843,000 Shares Repurchased
Since Wayfair does not pay dividends to its shareholders, stock repurchases are an essential tool to reward shareholders. From July 1 to September 30, the company repurchased 843,941 shares. As of early November, 72.81 million shares are outstanding.
In early November 2019, Wayfair stock was trading for $83. A year later, the company's stock price broke the $300 level. Early investors in Wayfair have gained even more. In 2014, the company's stock price was $32. In just over six years, the company's stock price has risen nearly tenfold. The share price has skyrocketed in 2020, in particular from a low of $39 in mid-March.
Wayfair Boosts Advertising Spending
Earlier in 2020, many companies pulled back on their advertising spending. Since the company has an ecommerce model, it can continue to ship products despite the pandemic. In the first nine months of 2020, the company spent $1.037 billion on advertising. That's a notable increase compared to the company’s spending of $784 million in 2019.
Inside Wayfair's Five Ecommerce Brands
The company operates five distinct online brands. The flagship brand, Wayfair, is focused on home products. Joss & Main is focused on stylish designs. AllModern is different — it emphasizes modern design. The Birch Lane brand emphasizes affordable home furnishings. The Perigold focuses on luxury home furnishing products.
Bruce Harpham is an author and marketing consultant based in Canada. His first book "Project Managers At Work" shared real-world success lessons from NASA, Google, and other organizations. His articles have been published in CIO.com, InfoWorld, Canadian Business, and other organizations. Visit BruceHarpham.com for articles, interviews with tech leaders, and updates on future books.