W - Wayfair

[KCLarkin]

I will also contend a comment made earlier in this topic. Existing customers are not free. Sure, they may not have a negative contribution in subsequent orders, but I assure you that all those emails they send to new AND existing customers cost money. During my brief stint in retail, each email was about $0.01.

 

They nicely break out "other marketing" from advertising. So you can make your own estimates about email costs. But if they spend $46 to acquire a customer, $0.01 per email rounds to zero in my books. Assume 100 emails per customer per year. That is $1.00 in maintenance emails per year per customer.

[ScottHall]

Wayfair is essentially a 3rd party distribution platform with an advertising program on crack. Wayfair has a network of 3rd party sellers that provide inventory data to populate the website. Wayfair is basically a broker with a snazzy website selling home furniture and products.

 

W will work because:

(1) There are network effects at play

(2) Eventually you leverage CACs

(3) Sellers like existing on a platform that prioritizes the products they produce (home products vs. AMZN medley of categories)

(4) AMZN can coexist with other online retailers because the customer prefers shopping at stores that specialize, even online.

 

W will not work because:

(1) Economically, a seller might be more inclined towards the economics of AMZN 3rd party selling vs. Wayfair's platform. AMZN said to take 10-15% cut vs. Wayfair gross margin of ~24%

(2) Repeat customers don't repeat into perpetuity, or they don't re-order frequently enough.

(3) They've already acquired the good customers.

(4) The threat of (1) and the trends of (2) & (3) could lead to elevated cash burn  -> share dilution or more debt

 

I have no position in this stock. However, I believe if this management team succeeds, it will be despite themselves. With that said, Tilson's short pitch is pretty bad caricature of what I believe to be the short thesis.

 

I agree with all of this except the comment regarding management, which I'd like to know more about. Have you had some dealings with them in the past?

 

I met them during the roadshow. My biggest gripe is not their prior exploits, but how they are running this business today. I believe they are high on retail drugs, advertising, and the consequences are dangerous.

 

I will also contend a comment made earlier in this topic. Existing customers are not free. Sure, they may not have a negative contribution in subsequent orders, but I assure you that all those emails they send to new AND existing customers cost money. During my brief stint in retail, each email was about $0.01.

 

Fair enough.

 

I suppose your statement about e-mail costs is true in the same sense that there's no such thing as a truly fixed cost. As KCLarkin says, though, rounds to zero.

[sternalot]

I wouldn't cast the email detail aside so quickly. Prices may have changed.

[Jurgis]

Got the sofa. On time. Shipped Fedex ground. Looked like it shipped from Wayfair, not 3rd party, but not 100% sure.

 

Product as expected. Quality possibly not great, but that's something that's tough to evaluate over Internetz. That's one reason brick&mortars will be alive for a while.

[gurpaul88]

Wayfair Reports Record Growth for Peak Five-Day Holiday Shopping Weekend:

 

http://news.morningstar.com/all/ViewNews.aspx?article=/BW/BWIPREM20151202005647_univ.xml

[gjangal]

I am still reading the s-1 and the 10 K Qs , but the latest Q results look positive. Improved gross margins and falling op ex, plus ratio of advertising dollars spent to revenue growth is not bad for the nine months this year. ( Seasonality could be a factor)

 

Scott,

 

Apart from the Amazon buyout thesis, what do you think the operating margins of the company might be if any at all. Imo Razor thin distributor margins with good revenue growth might do the trick.

[ScottHall]

Sorry guys, trading restrictions meant I couldn't comment on Wayfair for a while.

 

I think margins in the low-to-mid single digits makes sense LT.

 

Also, the sales numbers they released for the holiday shopping weekend are insane. My understanding is that Tilson is now testing Chinese-made baby furniture to scare up some headlines, so as always, I'd expect volatility.

 

Still long.

[gurpaul88]

http://www.bidnessetc.com/64255-wayfair-inc-tumbles-despite-quarterly-beat-80-sales-growth/

[gurpaul88]

https://www.twst.com/update/wayfair-inc-wayfair-announces-first-quarter-2016-results/

[ratiman]

so  if we know the cac do we know the ltv of each customer or is that not how they calculate it? I haven't looked that hard but I don't see anywhere in the investor presentation or earnings reports where customer ltv is addressed. thanks

[ScottHall]

so  if we know the cac do we know the ltv of each customer or is that not how they calculate it? I haven't looked that hard but I don't see anywhere in the investor presentation or earnings reports where customer ltv is addressed. thanks

 

I don't believe it is addressed.

[ratiman]

Wayfair's growing at a phenomenal rate and still running pretty close to breakeven. It's selling at about 4x this year's net revenues and is growing at 70% so I'd say it should probably be selling for more like 7-8 net revenues. It's not really an ecommerce company, it's more like a marketplace like a Truecar or Etsy, but it reports the gross revenues as if it were like Amazon. The comparison to Overstock is not really fair because Wayfair is run by a genius who bootstrapped it for nine years and Overstock is run by conspiracy crank. FWIW, the shorts are going to get totally smoked here.

[gurpaul88]

http://www.thecerbatgem.com/2016/08/09/wayfair-inc-w-releases-earnings-results-misses-expectations-by-0-02-eps/

[gurpaul88]

http://investor.wayfair.com/investor-relations/press-releases/press-releases-details/2016/Wayfair-Announces-Third-Quarter-2016-Results/default.aspx

 

down -16% after earnings

[Spekulatius]

Wayfair is burning a lot of cash - they probably need to raise some cash soon.

[gurpaul88]

http://www.businesswire.com/news/home/20170110005221/en/Wayfair-Expands-Plumbing-Offering-Introduces-Specialized-Team

[ScottHall]

Interesting quarter. Sales growth has slowed meaningfully, but they've started breaking out the U.S. and International divisions so you can see the EBITDA at each. Looks like they could flip the switch on the U.S. business anytime, but are instead investing in improving customer service, and European growth is swamping what they get out of U.S. currently.

 

So, one point of alleviation to me is that I'm somewhat more confident in my thoughts about the company's underlying economics... but at the same time growth is slower than I'd like. Market seems a little skeptical ATM; shares down 8% before the open.

 

I like the focus on improving customer service and the distribution network > reported profits, but would like to see growth pick back up a bit. We'll see what the future has in store.

[dwk24]

Seemed to me after reading the furniture today article that Amazon is merely setting up a marketplace for small-time furniture retailers (or possibly manufacturers).  I don't even think Amazon is going to provide delivery - it's still on the retailers to deliver to the customer: "Amazon is asking for a $39.99 monthly fee for an unlimited number of listings as well as 15% on the product sale and 20% on the services, according to Brett Hobson, Amazon business development representative in the furniture category."  If Amazon is charging 20% on services, then they seemingly aren't providing the services?  And if they aren't providing the services, why not?  Possibly because all of their infrastructure is geared toward small parcel?  (just speculating)

 

I think the big issue for furniture retailers is that they aren't good at drop shipping furniture - they need a good partner who can deliver furniture, quickly.

 

This is an interesting quote from a small time furniture retailer, that was buried at the end of the article: "whether [Amazon's offering] makes sense is something I’m not willing to commit to right now.”

 

I

[aalexa1225]

Can someone walk me through this "flip the switch" theory?

 

Wayfair does not make money now, is the theory that they can just stop their marketing expense and the revenue and everything else stays the same?

 

What examples can I study for someone "flipping the switch"?.

 

AOA

[premfan]

By "flip the switch" do you mean economies of scale?  The thesis is with "x" of total addressable market they will achieve enough scale to earn a decent operating margin.  A operating margin is achieved with decent brick retail why not for a company that carrys 1/10th of inventory of the big traditional players. 

 

The trend is towards cheaper transport costs.  Drones for small items and Druids for bigger items.  I presume the thesis for most is scale + cheaper transport cost= operating margin.  I'm not a investor i just observe.  The cost of moving stuff is inherently deflationary.  A truism ( maybe someone's law) is that anything that technology touches is deflationary and anything that technology hasn't touched is inflationary.  What tech hasn't touched:

 

- houses ( smart houses would be fun.  A homebuilder specializing in smart houses.  None of this tiny house marketing stuff. )

- subjective experiences

- maybe good thread on listing what technology hasn't touched. Meaning the transfer cycle is in the early early days or nonexistent.

-  Cities are the ultimate moat.  Land in densely populated area is the ultimate moat. Tech will most lately for decades not touch land in a desirable densely populated location.

 

 

edit: tech has touched houses.  IE echo.  I mean a homebuilder that pre sets up everything.  All apps installed/synced and updated while i just continue being lazy human.

 

 

 

[Jurgis]

- houses ( smart houses would be fun.  A homebuilder specializing in smart houses.  None of this tiny house marketing stuff. )

 

...

 

edit: tech has touched houses.  IE echo.  I mean a homebuilder that pre sets up everything.  All apps installed/synced and updated while i just continue being lazy human.

 

OT?

 

When you mentioned tech and houses, I was thinking more of robot contractors. I.e. you want to redo the kitchen, a team of robots show up and reroll the floor, paint the walls, redo cabinets in one day and leave everything perfect.

 

The self-organizing homes made of nanites is longer term vision...  8)

 

+ robot landscapers, robot gutter cleaners, robot chimney cleaners, robot snow cleaners... oh my  8)

[dwk24]

- houses ( smart houses would be fun.  A homebuilder specializing in smart houses.  None of this tiny house marketing stuff. )

 

...

 

edit: tech has touched houses.  IE echo.  I mean a homebuilder that pre sets up everything.  All apps installed/synced and updated while i just continue being lazy human.

 

OT?

 

When you mentioned tech and houses, I was thinking more of robot contractors. I.e. you want to redo the kitchen, a team of robots show up and reroll the floor, paint the walls, redo cabinets in one day and leave everything perfect.

 

The self-organizing homes made of nanites is longer term vision...  8)

 

+ robot landscapers, robot gutter cleaners, robot chimney cleaners, robot snow cleaners... oh my  8)

 

https://www.google.com/finance?q=NASDAQ%3AIRBT&ei=Bj0CWZGgOcWGepbUscAB

 

[Jurgis]

https://www.google.com/finance?q=NASDAQ%3AIRBT&ei=Bj0CWZGgOcWGepbUscAB

 

IRBT. Yeah, I know. Perhaps I should spend some time on it. We need ScottHall thread on it. Maybe won't happen until they start making weed rolling bots.  8)

[gurpaul88]

https://www.twst.com/update/wayfair-inc-wayfair-announces-first-quarter-2017-results/

[Spekulatius]

I am surprised this is worth 20% more than yesterday for some people after these results. I don't get this new economy stuff. I go back to my cigar buts.