Lowered Prices and New Revenue Streams Position Wayfair for Sales and Profit Growth

Wayfair plays in the fragmented home goods market in North America and the UK (more than $500 billion global opportunity), offering more than 30 million products from around 20,000 suppliers. We think its differentiation comes from its breadth of products and logistics network, which allows faster delivery with fewer touchpoints and less product damage than its peers. However, we believe Wayfair lacks brand strength, evidenced by its elevated advertising spending relative to peers and customer acquisition costs. Moreover, we think peers will continue to attempt faster innovation and delivery, spurring rising competition. Its largest namesake brand targets a wide consumer base of customers aged 25-54 years with an average household income of $60,000-$175,000, leaving Wayfair competing with mass-market retailers, specialty retail, and low-cost providers, making it hard to stay top of mind. This, along with no switching costs, underlies our no moat rating.