The Good (Profits) And The Bad (International Headwinds) For Wayfair

Pacific Crest Securities recently issued a report on Wayfair Inc (NYSE: W) after the company reported strong fourth-quarter earnings and intentions of international investment. The firm rates Wayfair at Sector Weight, while a price target is unavailable.

Analysts Edward Yruma, Jessica Schmidt and Noah Zatzkin wrote, "Q4's results demonstrate material acceleration in reported sales (+70.6 percent y/y), but more importantly in repeat customers (+54 percent of sales, up 400 basis points y/y). Management is clearly making the decision to reinvest some of the incremental EBITDA for long-term growth, particularly in international, which we think makes sense given the highly fragmented competitive set."

Pacific Crest gave two key takeaways following Wayfair's earnings announcement:

1. Profitability

Analysts at Pacific Crest noted that Wayfair may be able to increase profitability in 2016 due to strong customer retention with a history of repeat purchases. Going forward, Wayfair has demonstrated the ability to manage costs efficiently, which may lead to increased profitability as well.

2. Revenue Growth

Wayfair reported a 55 percent year-over-year 2016 revenue growth rate, which Pacific Crest believes could give Wayfair the opportunity to gain significant market share. Furthermore, the company is expected to begin investing internationally in Canada and Western Europe, which also brings the potential for top-line growth.