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Shares of Wayfair Inc. fell 11.3% on Thursday after the company announced larger-than-expected losses and escalating advertising costs.
While the online home furnishing retailer posted sales growth of $ 1.71 billion in the third quarter, it exceeded the FactSet consensus of $ 1.67 billion in the third quarter, but recorded an adjusted loss of $ 1.28. The factual information provided a loss of $ 1.09. Wayfair
W, -3.33%
reported a loss of 65 cents last year.
In addition, the company announced advertising costs of $ 541.8 million for the nine months ended September 30.
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The advertising figures drew the attention of Neil Saunders, Managing Director of GlobalData Retail, who points out that the company has added 3.6 million new active members over the last year at a cost of $ 196 per new customer.
"We are aware that it's a simplified calculation because it does not take into account the impact of advertising on existing customers, but it highlights the fact that Wayfair buys both market share and buyer shares with extremely high marketing expenses, "said Saunders in a Note.
The turnover per active customer in the last 12 months was $ 443 as at September 30th.
Wayfair CEO Niraj Shah spoke about the company's investments to strengthen its business and become profitable in the long run. Over the past two years, we have focused our efforts on mattresses, including Nora, its exclusive bed-in-a-box brand.
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And the launch of the MyWay membership program that costs $ 29.99 per year to users.
Shah also said the company was trying to allow providers to spend their budget on advertising for a larger placement on the Wayfair site. The program is now generally available after a pilot phase that ended in September.
"We are in the early stages of developing this area of our business with our data-driven culture and vendor partnership puts us in a strong position to evolve this effectively over time," he said. , according to a transcription of FactSet.
GlobalData recognizes that some of Wayfair's expenses are related to geographic expansion. However, Saunders said costs should be lower as they grow in the United States, which accounts for the majority of their revenue, and move to direct email marketing, a less expensive option.
"For all these operational concerns, Wayfair deserves credit for replacing an attractive and easy-to-use retail proposition," wrote Saunders. "[T]The shopping experience in general is superior to other online offerings and this, combined with the wide range of products, helps to make Wayfair a destination. "
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Nevertheless, he questions the sustainability of the company.
"All online businesses have difficulties in terms of profitability, but this is all the more true in a category of high and infrequent costs like furnishings," writes Saunders.
Wayfair shares have risen nearly 53% in the past year, while the S & P 500 index
SPX, -0.63%
is up 6.2% for the period.
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