DA Davidson Downgrades Wayfair In The Face Of Increased Competition From Overstock

Wayfair Inc W shares closed down nearly 6 percent Friday after D.A. Davidson issued a bearish report expressing concern indicates over Overstock.com Inc OSTK's comments that the online retailer would increase spending to take more market share in the home furnishing space.

The Analyst

Analyst Tom Forte downgraded Wayfair from Neutral to Underperform and maintained a price target of $65.

The Thesis

Wayfair’s plans to significantly increase advertising are likely a reaction to increased competition with Overstock.com Inc OSTK, Forte said in a Friday note. (See the analyst's track record here.) 

“While we acknowledge that Overstock’s management has gone out of its way in the past to discredit Wayfair’s business model — investment spending to drive customer acquisition and market share — we believe increased competition for the online home category could have an ever greater negative impact on Wayfair's operating results" than initially suggested by the company's guidance, Forte said. 

D.A. Davidson's downgrade does not solely come due to increased competition, but also because shares have "reinflated" after falling moret than 22 percent after Wayfair's Q4 earnings miss, the analyst said. If shares fall significantly on the Overstock news, Forte said he'd be open to adjusting the rating.  

A path exists for both Wayfair and Overstock to grow in tandem, he said. 

“Should Wayfair and Overstock take share from traditional brick and mortar retailers in the home category as more offline dollars move online, Overstock’s new business strategy may not materially affect Wayfair." 

Price Action

Wayfair shares were down 5.97 percent at $78.95 at the close Friday. 

Related Links:

Should Amazon Buy Wayfair? Loop Capital Makes The Case

WayFair Falls 15%, Citron Says Q4 Earnings Affirms Belief Company Is Running A 'Terminal Business Model'

Disclosure: The author own shares of Overstock.

Posted In: Citron ResearchDA Davidsone-commerceHome GoodsretailTom ForteAnalyst ColorShort SellersDowngradesPrice TargetAnalyst Ratings

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.