Personal Finance

Why Wayfair Inc. Stock Tumbled Today

What happened

Shares of Wayfair Inc. (NYSE: W) were heading lower today after the online furniture seller posted a wider-than-expected loss in its fourth-quarter earnings report. The market looked past strong revenue growth, instead focusing on the company's bottom-line result and sending the stock down 21.2% as of 10:57 a.m. EST.

A tan living room set with aqua pillows from Wayfair brand Joss & Main, in a light blue room.

Image source: Wayfair.

So what

The e-commerce home-goods specialist continued to deliver impressive sales growth as revenue increased 46% to $1.44 billion, beating estimates of $1.36 billion. Active customers climbed 33% to 11 million, and average order size jumped from $203 to $229. However, gross margin declined from 24.2% in the quarter a year ago to 23.1%, a sign that competition may be intensifying, thereby bringing down prices. As a result, the company's loss per share expanded from -$0.51 to -$0.83, which was worse than analyst expectations at -$0.53.

CEO Niraj Shah touted the company's "incredible growth," saying, "Our long-term investing approach and customer-centric mentality continue to pay off as we outpace the shift to online spending in our category and gain significant market share." However, he did not address the widening bottom-line loss.

Now what

Looking ahead, Wayfair said expected revenue of $1.315 billion-$1.345 billion in the current quarter, up 40%-43% from last year, and ahead of estimates of $1.29 billion, but the company also said that EBITDA could be negative for the first time in a year, indicating that the bottom line will continue to be challenged.

Separately, Walmart announced that it would launch a new home-goods site, indicating that competition in the industry is heating up. Wayfair's revenue growth is certainly impressive, as the company is on its way to more than $6 billion in revenue this year, but investors are justified in expecting progress toward profitability. After the stock more than doubled last year, it's not surprising to see higher investor expectations.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Wayfair. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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