Wayfair Inc W reported its 2Q16 results with the revenue and EBITDA marginally beating the consensus, driven by customer and AOV growth.
Justin Post of Bank of America Merrill Lynch downgraded the rating on the company from Buy to Neutral, while lowering the price target from $54 to $45.
“We think the stock will be range bound as investors favor other small caps stocks with margin growth,” Post mentioned.
Trend Reversal
The analyst pointed out that 2Q16 marked a trend reversal, where Wayfair beat the upper end of its revenue guidance by 10 percent on average every quarter between 4Q14 and 1Q16. However, in 2Q16, the upside was less than 1 percent.
The company hired employees during the quarter, based on expectations of higher revenue growth, although the analyst expects this to put pressure on margins for the next few quarters.
In addition, the company reported robust customer growth of 65 percent, with TTM revenue per active customer growing at a steady 13 percent year-on-year.
Order Growth
Orders delivered rose 50 percent year-on-year, decelerating from the 67 percent growth in Q1. Orders per average TTM active customer also declined 10 percent year on year, which the analyst believes is the “biggest negative of the quarter.”
“The company is targeting breakeven EBITDA in 4Q, though this may be a stretch without revenue upside,” Post stated.
The revenue and EBITDA estimates have been lowered, following the company guiding to below consensus revenue and EBITDA for 3Q.
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