Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Junk Pile

Is Wayfair in Trouble?

Wayfair Inc. (NYSE: W) one of the few online retail success stories outside of Amazon (NASDAQ: AMZN) could be in trouble.

In fact, Wayfair laid-off 550 employees or 3% of its workforce on 13 February 2020, USA Today reports. The layoffs are part of Wayfair’s attempt to cut costs by streamlining its operations.

It is easy to see why Wayfair is laying off people. Wayfair reported a -$305.42 million quarterly operating loss on 31 December 2019. Wayfair’s operating loss rose during each quarter in 2019. For instance, Wayfair reported a -$129.60 million quarterly operating loss in 31 December 2018 and -$259.71 million quarterly operating loss on 30 September 2019.

Wayfair Grows and Loses Money

Strangely, Wayfair is growing and losing money at the same time. For instance, Wayfair reported a quarterly revenue growth rate of 25.79% on 31 December 2019.

However, Wayfair reported a quarterly net common loss of -$330.22 million on 31 December 2019. Moreover, Wayfair reported a negative operating cash flow of -$36.30 million, a negative investing cash flow of -$675.66 million, and a negative financing cash flow of -$70,000 on 31 December 2019.

Consequently, Wayfair had a negative ending cash flow of -$712.63 million on 31 December 2019. However, Wayfair reported a $620.27 million ending cash flow on 31 September 2019.

Wayfair is Burning Cash

Therefore, Wayfair can generate large amounts of cash. Unfortunately, Stockrow data shows Wayfair burned -$712.63 million in the last quarter of 2019. I think that shows Wayfair lost money during the all-important 2019 Holiday Shopping season.

In the final analysis, Wayfair burned almost much cash as it in the bank in the last quarter. In detail Wayfair had $987 million in cash and short-term investments on 31 December 2019. Wayfair’s cash was down from $1.301 billion on 30 September 2019.

Thus, I suspect Wayfair had to dip into its cash to pay for operations during the last quarter of 2019. Disturbingly, I think that shows Wayfair’s business model could be unsustainable.

Is Online Retail Unsustainable?

Wayfair’s problems are troubling because eMarketeer estimates Wayfair is the sixth largest online retailer in America.

However, eMarketeer calculates Wayfair controlled 1.5% of the U.S. eCommerce market in February 2020. In contrast, Amazon (NASDAQ: AMZN) controlled 38.7% of the market in February 2020.

Moreover, eMarketeer claims the second largest online retailer, Walmart (NYSE: WMT) controlled just 5.3% of the market in February 2020. I predict that will raise anti-trust questions about Amazon.

In particular, Amazon has become an issue in the 2020 presidential race. Notably, U.S. Senator Bernie Sanders (I-Vermont); one of two remaining major candidates in the Democratic presidential primary, features pictures of Amazon CEO Jeff Bezos in his TV ads.

Can Wayfair Compete with Amazon’s Monopoly?

Investors will wonder if companies such as Wayfair can compete with Amazon’s monopoly.

I think Amazon threatens Wayfair because of its ability to expand its services dramatically. For instance, Amazon expanded its Prime same-delivery program to Dallas, Philadelphia, Phoenix, and Orlando on 3 March 2020, Reuters reports.

Thus, Amazon claims it can offer six guaranteed package delivery times a day in those cities. Currently, Prime costs $119 a year and offers access to over 100 million products in the United States.

To support same-day delivery Amazon is opening new smaller fulfillment centers in urban areas. Reuters reports the new centers will be around 100,000 square feet in size or one 10th the size of a typical Amazon fulfillment center. One advantage to the smaller format is that Amazon can lease existing warehouse space to house the centers and reduce construction costs.

Wayfair cannot compete with Amazon

I believe the new smaller fulfillment centers threaten Wayfair because Amazon could deliver furniture from them. Thus, Amazon is poised for direct competition with Wayfair.

Personally, I cannot see how Wayfair can compete with Amazon at a time when it is cutting staff. Moreover, Amazon’s resources are far greater than Amazon’s.

Notably, Amazon had $55.021 billion in cash and short-term investments on 31 December 2019. Thus, Amazon’s available cash is over 55 times greater than Wayfair’s.

Therefore, I conclude Wayfair could not compete with Amazon without a deep-pocketed backer. In my opinion, potential deep-pocketed backers include; Berkshire Hathaway (NYSE: BRK.B) and private equity funds.

What Value Does Wayfair Have?

Wayfair’s value is tiny in comparison to Amazon’s. For instance, Wayfair had total assets of $2.953 billion on 31 December 2019. Meanwhile, Amazon had total assets of $225.248 billion on the same day.

However, Wayfair (NYSE: W) did not appear in Disfold’s list of 10 most visited e-commerce sites in November 2019. Thus, I think Wayfair is not attracting the serious internet traffic it needs to survive.

Therefore, I think Mr. Market overvalued Wayfair with a $50.04 share price on 9 March 2020. I think there is nothing in Wayfair’s finances that justifies that number. Notably, Discord estimates Amazon was the most visited U.S. e-commerce site with 2.476 billion monthly website visits in November 2019.

I believe ordinary people need to avoid Wayfair stock because it pays no dividend and loses money. I predict Wayfair will collapse and become an acquisition target.

In the final analysis, I believe Wayfair stock has only speculative value. Therefore, I advise only speculators to buy Wayfair (NYSE: W) stock.