Wayfair Earnings: Top Line Indicates Market Share Gains but Revenue Growth Could Slow

Despite operating in an extremely weak home furnishing landscape, no-moat Wayfair was able to eke out top-line growth of 4% in its third quarter (to $2.9 billion), indicating that it’s taking market share in an industry that has trended down at a double-digit clip. Gross margin continues to impress, expanding more than 200 basis points to 31.2%, as improving costs, merchandising, and mix helped. This was the largest contributor to the firm’s 3.4% EBITDA margin, which modestly edged our 3.2% projection. Key metrics signal Wayfair may have found a support level for its demand, with the number of active customers down just 1% (up 2% sequentially), orders delivered up 14%, and customer acquisition costs contracting modestly over the prior quarter (by our math). Moreover, early indications point to further market share gains, with Wayfair calling for gross revenue to end the fourth quarter in a range of flat to up low single digits—a level that could be much better than the market given the weak spending across discretionary consumer categories.