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.
Related Links:
Piper Jaffray: Wayfair's 'Way Day' Could Land Retailer New Customers
Should Amazon Buy WayFair? Loop Capital Makes The Case
Photo courtesy of Wayfair.
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