Wayfair’s share price: Earnings preview

Wayfair's [W] share price did not have a good October. Slipping more than 14% in the past month, investors seem wary that the lockdown-triggered boom for home improvements is a one-off. That’s bad news for Wayfair’s share price, which had been one of the year’s biggest winners until late August.

Still, Wayfair's share price is still up 166.3% this year to date (as of 30 October). Will a decent earnings result turn things around, or is it about to close out 2020 on a damp squib?

When will Wayfair report earnings?

3 November

What happened last quarter?

Wayfair’s share price benefitted from an excellent second quarter. Total net revenue of $4.3bn was up 115% compared to the $2bn seen in the same period last year. Non-GAAP diluted earnings per share was $3.13.

18.9 million orders were delivered in the second quarter of 2020, an increase of 106.2% year over year. In a sign of the increased importance of easy online shopping, 60.6% of total orders delivered by Wayfair's direct retail business were placed on a mobile device.

"Our strategic long term investments positioned us well to serve our customers and to quickly adapt during a challenging time. We experienced unprecedented demand in Q2 and saw record numbers of new and repeat customers choose Wayfair," Niraj Shah, Wayfair’s CEO, said in a statement.

In the third quarter, Wall Street expects earnings of $0.80 per share. While a huge jump on the $2.23 loss seen in the same quarter the previous year, that figure would still represent a decline on Q2. Revenue is pegged at $3.65bn, up 58.1% on the previous year, but again a dip when compared to last quarter.

Why should investors care about Wayfair's share price?

Rick Munarriz, writing in The Motley Fool, calls Wayfair this year's comeback kid. It's not an idle description. As Munarriz points out, Wayfair's share price was one of the hardest hit in March as the coronavirus pummelled the markets. However, since the March lows, Wayfair's share price has soared over 950%, and the company saw a huge jump in net revenue in the second quarter.

Munarriz acknowledges upcoming earnings will see the recent white-hot pace cool. However, with Wayfair's customer base having widened by 46% this year, he's positive about the company’s future, arguing that Wayfair is growing during a recession.

Is 2020 a one-off windfall for Wayfair’s share price?

Bloomberg's Conor Sen writes that, for investors considering stocks to hold for 2021, there "may be no bigger red-flag than a huge third-quarter earnings beat."

According to Sen, the sparkle has started to come off some of the stocks which weathered the initial pandemic panic well, with recent bumper earnings being a one-off windfall. Should consumer behaviour revert to pre-pandemic patterns — for example, in the event of a successful vaccine — then Wayfair’s share price could be in for a more muted 2021.

"If 2020 was the year that Americans bought a second refrigerator or did an extra home-improvement project, then 2021 might be the year Americans take that bucket-list trip to a national park or splurge on dining out after being unable to do so for months," Sen wrote.

Where next?

Despite Wayfair’s share price slipping from its autumn high, William Blair is bullish on the stock, upping its rating from Outperform to Market Perform at the start of October.

Among the bears is Chuck Grom at Gordon Haskett. Grom downgraded Wayfair from Buy to Accumulate, citing rising basket abandonment and supplier constraints as upcoming issues. Grom has pinned a $330 price target on the stock.

Among the analysts tracking the stock on Yahoo Finance, Wayfair's share price has an average $309.60 target, which would represent a 24.8% upside on the current share price (as of 30 October’s close). Of the 23 offering recommendations, nine rate Wayfair a Strong Buy, five a Buy and the rest rate it a Hold.