The following analysis is an excerpt from the February 26th issue of the Short Seller’s Journal:
Wayfair reported its Q4 and year-end numbers last week. They were a complete disaster for the Company. Revenues declined 4.6% YoY in Q4. The Company’s operations lost $330 million on $3.1 billion in revenues vs losing $196 million in Q4 2021. For the full-year W generated a $1.3 billion operating loss vs $131 million operating loss in 2021. Active customers declined 19% YoY in 2022. W lost $12.54/share vs losing $1.26/share in 2021 and earning $1.93/share in 2020.
The question remains, “does Wayfair (like Bed, Bath and Beyond) need to exist?” At the end 2022, W had $1.27 billion in cash/short term investments, down from $2.39 billion at the end of 2021. However, based on the most stringent test of solvency, W is close to being insolvent. Including receivables, W has $1.5 billion in potential liquidity vs $1.2 billion in payables. At the current quarterly burn rate, W could be insolvent by the end of Q1 2023. W also has a $2.5 billion negative book value, which definitionally means it’s technically insolvent.
W’s operations managed to generate $98 million in cash (from the statement of cash flows) but for the full-year its operations bled $674 million in cash. The Company has $3.2 billion in convertible debt for which the conversion prices are beyond any reasonable hope that the bonds convert (conversion prices ranging from $63 to $417). These bonds should be regarded as straight debt that will need to be paid off at maturity. $200 million is due November 2024. I’m not sure the Company will be operating outside of bankruptcy protection by then.
Remarkably, if not unethically, management and employee stock-based compensation was $513 million vs $322 million in 2022 and $276 million in 2020, the latter year being the last time W generated profits. It blows my mind that the Board approves lavish compensation for horrific performance. Insiders unloaded over 11,000 shares from zero-cost compensation options at the beginning of February when the stock was trading in the high-$60’s. I suspect quite a bit more stock will be unloaded over the next several weeks now that the 10-K has been filed.
Wayfair’s stock price plunged 23% from the $49.81 previous day’s close after it reported its numbers. It ended the week at $37.43, which is still 30% higher than the $28.75 close on November 9, 2022, before W was swept higher by the bear rally in both unprofitable tech and heavily-shorted stocks. $28 is my near-term downside target. However, W closed at $23.52 at the market bottom in March 2020. I would not be surprised to see the stock trade down to that level or lower before the end of the summer.