A Double Upgrade on Wayfair? Hold on. Those Analysts Are Dead Wrong.

Wayfair (W) won big during the pandemic: Folks seeking to upgrade their at-home surroundings without having to visit a single store could purchase just about any type of furniture they needed through its website and have it delivered to their door in a matter of days.

But after W shares surged to all-time highs (surpassing $300 in the spring of 2021), the company got a major reality check. Its stock price closed 2022 at just $32.

Wayfair was down for the count — until something changed this week that made its stock price surge +27% in a single day…

So, what happened? The company announced it was reducing its workforce by 10% in a much-needed step toward its plans to manage costs, break even earlier in 2023, and achieve positive free cash flow.

Analysts jumped on board with the move, bestowing Wayfair with a double upgrade. But we’re not buying this bullish “revival” on Wayfair just yet.

Because a look under the hood into LikeFolio’s proprietary database suggests it’s not all sunshine and roses for the eCommerce retailer.

Before you jump on the Wayfair bandwagon, take a look at these key LikeFolio indicators to find out if this rally is the real deal — or just a market overreaction you’d be better off steering clear of.

Indicator No. 1: Consumer Demand

Here at LikeFolio, we’ve built a powerful insights engine that allows us to analyze consumer social media posts in real time and distill them into bite-sized metrics that we map against a stock’s movement to identify investable opportunities.

Purchase Intent (PI), for example, can show us where consumers are spending their hard-earned cash – and for Wayfair, PI mentions are down –15% from last year.

Translation: Demand momentum is waning.

On a quarterly basis, there are signs of life (+17%), yes.

And the last time demand levels registered at this level (in 2018), Wayfair shares were trading near $80, offering some support to an oversold thesis.

But the difference now is that Wayfair demand does not appear to be gaining momentum like it was in 2018.

Consumer Happiness levels — which tell us whether folks feel positively or negatively about a given brand — have sunk by nearly 20 points for Wayfair in the same timeframe as consumers increasingly lament about the quality of Wayfair products.

Indicator No. 2: Web Traffic

For an eCommerce retailer like Wayfair, web traffic is absolutely essential to the bottom line.

A dip in page views means fewer people are visiting the site, which directly translates to fewer purchases being made.

At LikeFolio, we have an X-ray view into this web activity. And for Wayfair, it’s not looking good.

Wayfair’s web traffic trends mirror its weakening demand levels: U.S. page views are down -8% year-over-year (YoY) after bottoming out around Thanksgiving.

These metrics have proven to be highly correlated to a company’s revenue, and for Wayfair, this dip tells us it may not be able to hold onto recent momentum.

Indicator No. 3: Major Trend Headwinds and Tailwinds

Consumer macro trends — in other words, how folks are spending their money based on larger economic narratives like inflation — can serve as a major tell when it comes to an industry’s overall health and sustainability.

Trends like home renovation, real estate, and changes in décor preferences can impact Wayfair’s bottom line in a big way.

So, the fact that consumer demand for Home Renovation and Buying a Home are down –10% and –15% respectively, while demand for High-End Furnishings & Décor is rising (+14%), doesn’t bode well for the value furniture retailer.

If fewer consumers are moving, and therefore less likely to renovate and redecorate, demand for Wayfair’s products is likely to wane, too. And that’s especially true when you consider the amount of moving and redecorating that happened during the pandemic.

Bottom line: We’re not ready to jump into Wayfair just yet.

Wayfair reports its Q4 earnings at the end of February, so we’ll be monitoring its stock for a rebound in the meantime.

If any significant changes happen with Wayfair before then, our members will be the first to know.

Have a great weekend,

Megan Brantley
VP of Research, LikeFolio