A parameter sensitivity analysis shows forecast intervals that all align directionally. In our baseline scenario, we assume that pulled forward demand is now causing part of the decline in demand, but that this COVID-induced decline is temporary and will end by 2024, after which the customer metrics will return to the pre-Covid baseline trajectory.Īdditionally, we interrogated our model to see what plausible range of forecast scenarios were compatible with the observed data. One may argue that the accelerated decline of key customer metrics post-Covid that we see in the disclosed data may simply be a result of Covid-driven demand pulled forward and that demand will revert back to the pre-Covid levels in 1-2 years. The 2018 quarterly churn estimate is lower than in our updated analysis, meaning the group of new customers and subsequent bump in orders and revenue were short-lived indeed.
This appears in our model-implied latent churn estimates as well. A large swath of new customers looking to retrofit the home office during stay-at-home orders has likely left (or is leaving) the overall base of Wayfair customers. We found that despite skyrocketing demand after the immediate onset of the pandemic, the data shows that these improvements were not sustained. Here is the data for four key customer metrics we use in our CBCV model – quarterly gross customer additions, total orders, annual active customers, and revenues:
WAYFAIR ORDERS LAST YEAR UPDATE
To update our Wayfair CBCV model, we added the latest data points from the retailer’s quarterly and annual reports since 2018 and re-ran the model on the most up-to-date dataset. Our equity value estimate for Wayfair is negative $10 per share in the baseline scenario and $6 per share under more optimistic assumptions about the company’s ability to improve its margins. Because Wayfair is saddled with a large amount of debt, we simply cannot arrive at a favorable valuation, using our model-based forecasts, even in the most optimistic scenarios.With our updated Post-Acquisition Value (PAV) of recently acquired customers at $67, this implies strongly negative unit economics. We illustrate with two separate calculations that show, even giving Wayfair the benefit of the doubt, there has been a surge in the cost of acquiring customers. CAC continues to increase no matter how it is calculated, more than doubling over the last two years from $76 to $186 on a fully front-loaded basis (and more than tripling from $33 to $104 under the alternative “Adjusted CAC” definition Wayfair has proposed).At best, we have returned to the baseline from our previous analysis, though the current model suggests the home retailer is in an even worse position than before the pandemic. While the pandemic created a large surge in consumer demand, perhaps driven by stay-at-home-orders or stimulus checks, the current data suggests this effect is gone.The key points of our analysis are summarized below as follows: We used our model forecasts to arrive at a Customer-Based Corporate Valuation® (CBCV) estimate that, interestingly, mostly aligns with our previous customer analysis, but turns out to be significantly worse for the overall equity valuation due to the retailer’s struggle with fixed costs,high cash burn rate, and as a result, a large amount of debt on its books. In this analysis, we uncover whether any substantive changes have occurred in the unit economics in light of these unforeseen and historic events. It reached its all-time high of ~$356 on March 21, 2021, then lost more than 90% of its value to close at $28.75 on November 9, 2022.
When we posted our previous Wayfair analysis in Q3 2018, the company’s stock traded at around $135. The global pandemic and recent economic upheaval have disrupted many aspects of ecommerce, so we thought it was time to revisit our analysis and valuation of Wayfair. It’s been four years now since our updated analysis of Wayfair, with some extraordinary interim events, to put it mildly.
0 kommentar(er)
