Taking a closer look at Wayfair as a potential investment.

1. NYSE: W
Jason A. Moser
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2.  Few long-term trends pose the opportunity and
potential that e-commerce poses today.
 While a number of companies are making the shift
from bricks-and-mortar to e-commerce (or some mix
thereof), those that are built as e-commerce
companies from the start have a unique advantage
in claiming their share of the space.
 Wayfair is one such company that is gaining share in
a robust and growing market in home goods and
furnishings.
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The idea

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What does Wayfair do?
Wayfair is an e-commerce platform
that sells furniture, décor, lighting,
kitchen, bed and bath, outdoor, home
improvement, and baby and kids
products to consumers under the
Wayfair.com, Joss & Main, AllModern,
DwellStudio, and Birch Lane brands.

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What does Wayfair do?

5. Market opportunity
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Wayfair’s addressable home goods market (the US
furniture and home décor markets), was $233
billion in 2013, according to Euromonitor
International. It’s pegged to hit $297 billion by 2023.
In 2013 women represented 70% of Wayfair’s
customers. There are 63 million women between
the ages of 35 and 65, Wayfair’s target demo.
There are an estimated 73-80 million millennials (no
universal definition); about 25% of the US
population today. Up-and-coming spenders…how do
they spend? How do they shop?

6. A long-term trend
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Source: US Census Bureau

7.  Management’s case:
1. Differentiated: Home is shopped differently than
other retail verticals.
2. More is better: Home shoppers desire
uniqueness, which requires vast selection.
3. Easy does it: Time consuming and inconvenient
for consumers to shop across brick and mortar
home retailers.
4. Compare and contrast: Difficult to browse, value
shop and price compare.
5. Logistically speaking: Challenging logistics for
consumers and retailers.
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Why the home is different

8.  On management’s points:
1. True, typically a much more personal purchase that is
dependent upon individual taste and preference.
2. True, vast selection is definitely an advantage.
3. True, it’s much easier to shop online than it is to drive
across town from store to store. However when it comes
to furniture is the customer making this leap en masse?
4. True, to the aforementioned point, shopping, comparing,
value-seeking much easier online.
5. True, often bigger-ticket items, often must be delivered,
inventory management not as easy.
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Is the home different?

9.  Management’s case:
1. Service: Customer service is priority number one
with 30% of employees in CS division.
2. Experience: Continued investment in mobile and
personalization offers excellent experience.
3. Vast: Huge selection with more than 7,000
suppliers and 7 million products.
4. Mutual: Wayfair opens up a large customer base
to a localized supplier base, suppliers benefit.
5. Direct: Shipping directly from suppliers enhances
service, saves time, cuts down cost structure.
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Why is Wayfair different?

10. From the S-1:
“Net revenue consists primarily of sales
of product from our sites and through the
sites of our online retail partners and
includes related shipping fees. We deduct
cash discounts, allowances, rewards
and estimated returns from gross
revenue to determine net revenue.”
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How do they make money?

11. Sales
Orders delivered
Active customers
TTM revenue per active customer
Average order value
Margins
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Wayfair metrics that matter

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Managing sales and margins

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The value of growing orders

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More customers, more sales

15. Management
Niraj Shah
Co-Founder
CEO & Co-Chairman
Steve Conine
Co-Founder
CTO & Co-Chairman
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16. Management
Michael Fleisher
CFO since 2013
Former chairman & CEO of Gartner
James Savarese
COO since 2014
Joined Wayfair in 2008
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17.  Going by the numbers presented, Wayfair held 0.4% of its defined market
share in 2013 ($916 million in sales in a $233 billion market).
 Initial analyst estimates peg Wayfair sales at $6.4 billion by 2019; CAGR of
37.5% for that 5 year time frame. Assuming these are optimistic, let’s take
75% of this estimate…$4.8 billion and 30%.
 Cut that growth rate in half for 2020-2023, Wayfair sales in 2023 are $8.4
billion.
 Based on market estimates of $297 billion this would give Wayfair about
2.8% market share by 2023. Reasonable? Sure.
 Stock trades at 1.93X sales today; Amazon trades at 1.75X sales; eBay
3.75X sales; Google 5.7X sales. Amazon is its most sensible comparable.
 If Wayfair hits sales of $4.8 billion in 2019, at 1.75X sales we have a
market cap of $8.4 billion up from $2.14 billion today.
 But what’s happening to margins along the way? That’s the big question.
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Understanding future worth

18.  Suppliers: Relationships with suppliers are crucial but easily terminable.
Any large exodus could prove debilitating to the model.
 Amazon.com: Tremendously competitive space, not just Amazon either.
 Sensitivity: No doubt Wayfair and its brands are subject to an
economically sensitive consumer.
 Founders: While I’m very encouraged by the co-founders being so
intimately involved with the business, any infighting or departure of one
or both would be a red flag.
 Service: Reliance on suppliers for effective inventory management and/or
shipping could result in poor customer service.
 Go long: This is a growth story and a company that will be investing a lot
in its operations in the coming years.
 Duality: Dual-class share system places power in the hands of the
founders. They’re calling the shots, like it or not.
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Risks

19. Furniture Stores
Big Box Retail
Specialty and Online
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Competition

20.  E-commerce presents a host of investing opportunities as a
long-term trend that is still in the very early innings.
 The first question to ask of any retail play, e-commerce or
otherwise is: How will it compete with Amazon.com? Could
this be an Amazon acquisition target? Why? Why not?
 Founder leadership is a very attractive quality in Wayfair’s
business, but remember it’s not a thesis.
 Wayfair’s relationship with its suppliers is an integral part of
its business model.
 It’s too early to definitively call Wayfair a buy, however the
stock’s pullback should put it on the radar for investors who
are willing to be patient.
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Points of discussion

21. Remember, investing is all
about the future. There are
never any guarantees and you're
taking a measure of a leap of faith
every single time.
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