Market Overview

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

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

Wayfair Inc (NYSE: W) shares closed down nearly 6 percent Friday after D.A. Davidson issued a bearish report expressing concern indicates over Inc (NASDAQ: 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 Inc (NASDAQ: 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.

Latest Ratings for W

Jan 2021Morgan StanleyMaintainsUnderweight
Nov 2020DA DavidsonUpgradesNeutralBuy
Nov 2020Canaccord GenuityMaintainsBuy

View More Analyst Ratings for W
View the Latest Analyst Ratings


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