Wayfair: Lowering Our Fair Value Estimate on Adjustment to Stock-Based Compensation Inclusion

Although we didn’t anticipate any material change to our $91 fair value estimate for no-moat Wayfair after incorporating third-quarter results and an updated fourth-quarter outlook, we are reducing our valuation materially for an adjustment to the way we have accounted for stock-based compensation. We have made this change to conform with the general modeling principles across Morningstar’s equity research platform. As such, beyond 2024 we have eliminated the add-back for stock-based compensation to our model, resetting our new intrinsic value to $70 per share. We have made no other changes to our long-term estimates for Wayfair and still view shares as significantly undervalued at the current level. We surmise investors have shunned shares recently given the difficult housing market, the potential for tariffs, and the uncertain timeline for the restoration of demand.