Wayfair Earnings: Lower Advertising and Customer Acquisition Costs Set Firm for Solid EBITDA Margin

Key Morningstar Metrics for Wayfair

• Fair Value Estimate: $70.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Wayfair’s Earnings

Second-quarter sales rose 5%, to $3.3 billion, on a 5% increase in average order value at Wayfair W. Sales growth rose at the fastest pace since early 2021. An adjusted EBITDA margin expanded 110 basis points to 6.3%, helped by better advertising and operating expense leverage.

Why it matters: After four years of sales decline, a return to growth is in the cards for Wayfair. The industry has stabilized, with furniture and home furnishing sales up an average of 6% over the last quarter and year to date, signaling that an industry baseline for sales growth has been reached.

• Wayfair has tapped into alternative revenue channels to bolster growth, including multichannel (third-party logistics and fulfilling orders outside of Wayfair) and CastleGate forwarding (inbound and ocean freight), tying vendors more closely to the brand.
• As it monetizes new revenue streams, Wayfair is less reliant on B2C sales, which are often supported by housing turnover. We believe pushes into advertising and B2B could support nascent income streams, growing to nearly a third of total sales by 2028, with healthy margins.

The bottom line: We plan to lift our $70 estimate for no-moat Wayfair by around $5 to account for second-quarter outperformance and continued top-line growth in the second half of 2025. We view shares as fairly valued, given a 10% pop following the earnings release and a year-to-date rise of over 50%.

• Before the earnings call, our model included an adjusted EBITDA margin of 5.5% in the third quarter, in line with Wayfair’s 5.0%-6.0% outlook. We anticipate that mid-single-digit EBITDA metrics will increase to 8% over the next five years, as the firm benefits from leveraging an appropriate cost structure.
• That said, gains aren’t limitless, as the industry remains competitive, with little brand loyalty across commoditized categories and pervasive promotions. This will tie long-term sales growth to around 4% and EBITDA margin to a low-double-digit rate.