FINDING WAY TO FAIR GAINS
Wayfair shares up 20 percent
Shares of Hub e-commerce company Wayfair spiked by more than 20 percent yesterday after the company’s strong earnings report gave investors confidence it would reach profitability soon — even as the news sent short-sellers scrambling to cover their positions.
“The earnings were pretty good, the guidance was even better,” said Seth Basham, an analyst with Wedbush Securities.
Wayfair, which sells furniture and other home decor online, said yesterday revenue increased by more than 28 percent in the first quarter, while customers jumped to 8.9 million, a spike of nearly 46 percent compared to the first quarter of 2016. The company lost $56.5 million last quarter, but its performance this quarter came in better than expected.
“We’re thrilled about the momentum we’re seeing in our business right now both in terms of revenue growth and profitability, but also in terms of the progress we’re making along the key strategic initiatives we have been investing in for about two years,” said Niraj Shah, chief executive and co-founder of Wayfair on a conference call.
Shah said the strong results are coming on the heels of an allout hiring blitz, which saw the company add more than 1,800 employees last year.
“We feel like we’ve continued to assemble a truly impressive team that is firing on all cylinders,” Shah said.
Basham said one of the most promising indicators is the number of return customers, which increased by 50 percent, a sign of loyalty and customer satisfaction.
Shares of Wayfair surged nearly 25 percent during trading yesterday, eventually closing at $61.73, a 20.73 percent rise.
“We believe W is poised to (finally) get the credit it deserves as a category killer in the home goods space,” said Kelly Halsor, an analyst with Buckingham Research Group.
Still, the earnings report was enough to add $1 billion to Wayfair’s value in one day.
The company has been one of the most frequently shorted stocks, mostly based on a theory that Wayfair’s business model will never be profitable and will bend under pressure from giants like Amazon and Wal-Mart.
“A lot of those people who are shorting the stock are rushing to cover their short position, driving the price higher and higher,” Basham said. “We think a portion of the move has been driven by that, so it is somewhat artificial, so we expect it to settle ... But some held on to it.”
Wayfair has been the subject of acquisition speculation in recent weeks following an e-commerce buying spree. Analysts have said companies including Amazon, Wal-Mart, Target or even TJX could be potential suitors.