Consumer

Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.

Wayfair might want to be the next Amazon, but investors aren't so sure. 

The online home-goods retailer's stock plunged 20 percent Tuesday -- its biggest-ever one-day fall since going public in 2014 -- after it posted a second quarter of deepening losses.

Look Out Below
Wayfair's shares fell as much as 20% after posting a larger-than-expected loss Tuesday
Source: Bloomberg
Intraday times are displayed in ET.

Sales grew by 60 percent in the second quarter from a year before -- a growth number pretty much unheard-of for Amazon or any other retailer these days. But Wayfair's results marked a continued reversal from a year in which shrinking losses lent credence to its promise to eventually send sales dollars to the bottom line. 

Hammered
Wayfair's losses were steadily shrinking. No longer.
Source: Bloomberg

Huge moves in Wayfair shares aren't uncommon. The stock tends to swing up or down by 14 percent, on average, within a day of reporting earnings, according to data from Bloomberg.

Topsy Turvy
Wayfair's shares have rocketed up and down with each quarterly earnings report, spurring an average change in price of 14% within a day of reporting
Source: Bloomberg

The seesawing is due partly to the disconnect between Wayfair's earnings and analyst expectations. Since 2014, results have differed from estimates by around 24 percent, on average, in both directions, according to Bloomberg data. 

Generally, Wall Street analysts seem unable to make up their minds on Wayfair. Eight of the 19 analysts followed by Bloomberg rate the stock a "buy." The other 11 carry a "hold" rating. They are slightly more optimistic when it comes to share price, holding an average 12-month price target of more than $50 for the past year or so. (Tuesday's plunge took the stock below $40.)

A bunch of investors are betting against Wayfair. The percentage of shares outstanding and available to trade that are held short stands at around 30 percent, according to data from Markit and Bloomberg. That's down from nearly 50 percent in October 2015, when hedge fund manager Whitney Tilson said Wayfair was his largest short position. But this week another short-seller, Citron Research's Andrew Left, resurfaced calls for Wayfair's stock to sink lower, calling it a "nonsensical" business. 

Shortfall
Wayfair's short interest has fallen to about 30% of free float, down from close to half last November
Source: Markit and Bloomberg

Wayfair proponents can take solace in the similarities between Wayfair's tango with Wall Street and Amazon's.

Amazon's share price bounced along between $5 and $50 for more than a decade as disbelievers didn't think it could ever turn a profit. As Shira Ovide and I pointed out earlier this year, investors treated Amazon as a cash-burning dot-com plaything that was sure to collapse at any minute. It wasn't until 2015 that Wall Street became a true believer, leading Amazon to more than double its market value in a year, to more than $300 billion. 

Wayfair could certainly stand to rein in costs, including advertising and customer acquisition -- it estimates it spends $62 to attract each new customer. And as Amazon has done in the past, it could try to pull cost levers every now and then so that it posts a quarterly profit, even a meager one.

But like Amazon, Wayfair's online sales are growing faster than the overall e-commerce market, not to mention the traditional retailers Wayfair is trying to displace. The company estimates it's taking up to 40 percent of U.S. online spending growth in the home and decor categories.

Nearly 60 percent of Wayfair's orders came from repeat customers in the second quarter, letting Wayfair reduce the amount spent on advertising as a percentage of revenue (since it doesn't have to push as hard to keep customers as it does to attract new ones). And bulking up transportation and warehouse capabilities to speed up shipping and improve customer service, which is where Wayfair is spending a lot of money right now, are two major cost drivers Amazon has proven can pay off in the long run. 

At the very least, even if Wayfair doesn't turn out to be another Amazon, it could end up like Jet or Zulilly -- cash-burning, fast-growing online retailers with attractive technology, which get scooped up at lofty prices by traditional retail chains struggling to accelerate sales. Wayfair is one of only a half-dozen or so publicly traded e-commerce companies and could make a nice target for retailers such as Home Depot, Lowe's, Walmart or even Amazon itself. More outlandish things have happened

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shelly Banjo in New York at sbanjo@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net