Rising Customer Acquisition Costs Could Pressure Wayfair, Wedbush Says Ahead Of Q1 Print

Rising customer acquisition costs in a changing digital advertising landscape could pressure Wayfair Inc W to consider other growth avenues, according to Wedbush.

The Analyst

Wedbush’s Seth Basham downgraded Wayfair from Outperform to Neutral and lowered the stock’s 12-month price target from $90 to $63.

The Thesis

Intensifying competition, a tougher digital ad environment and already high penetration in the target customer market have raised the e-commerce company's customer acquisition costs, Basham said in a Monday note. (See the analyst's track record here.) 

“Rising CAC along with muted customer-level order trends indicates that customer lifetime value is not improving, and W may have to eventually slow acquisition-focused advertising or profitability will continue to suffer," Basham said. 

While first-quarter earnings on May 5 are likely to be in-line, this could disappoint investors due to the company’s history of upside surprises, the analyst said. 

Slow March sales trends could also contribute to downside risk, he said. 

“In our view, it’s not only these headline figures that are important to W’s outlook, but it is also key performance indicators including implied CAC, churn rates and repeat orders per customer." 

Price Action

Wayfair shares were down 6.69 percent at $62.15 near the end of Monday's trading session. 

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Photo courtesy of Wayfair.