We’re all familiar with pressboard furniture. It comes in cardboard boxes to be maddeningly assembled at home with the help of sometimes unreadable, always esoteric instructions. It once filled our college dormitories, and for many young adults a more refined version now fills their metropolitan apartments. Increasingly, these young people find their items on Wayfair (W). Wayfair is a Boston-based online retailer of home goods and furnishings that offers customers over 14 million items from global suppliers through five different branded websites. In addition to operating Wayfair.com, the organization also operates distinct websites for its Joss & Main, AllModern, Birch Lane, and Perigold brands.

Since its founding in 2002, Wayfair has grown at an impressive clip and customers have begun to think of the company as the “Amazon” of home furnishings. Today Wayfair has become the largest, online-only furniture retailer in the United States, claiming 33.4% of U.S. market share in online furniture sales. The company’s growth has served to buoy shares since Wayfair’s IPO in 2014, and shares have skyrocketed on a timeline coinciding with the rise of lockdowns and work-from-home orders.

In 2019, Wayfair reported $9.1B in revenues and -$737.5M in EBITDA, which is impressive when compared to the $1.4B in revenue the company reported in its IPO year, but does raise some important questions about profitability. Drilling into Wayfair’s recent earnings shows that in Q2 2020, the company’s profit margin stood at negative (10.7%) despite topline revenue growth of over 83% on a year over year basis. This growth has been enough to propel shares up over 433% in the last six months, which has placed shares on momentum investors’ radar and earn the company the #36 spot on EEON’s list of fastest growing companies.

This juxtaposition of growth and lack of profitability poses a problem for fundamentals-focused investors. At the heart of the issue is that Wayfair is largely sacrificing profitability and free cash flow generation in order to deliver the revenue growth it has exhibited. While this strategy is not uncommon in the growth-technology stock era, the lack of aggregate profitability is something to keep an eye on. Investors who have recently purchased shares are likely to expect Wayfair to deliver similar growth in the future, and a deviation from that trajectory is likely to send shares lower.

Naysayers see Wayfair’s recent explosion in share price as a natural reaction to the massive revenue growth the company has notched this year but point out that it likely stems from Americans buying furniture en-masse to accommodate their pandemic-era, home-centric lifestyles. The natural question becomes whether consumers will continue to buy furniture and home goods at the same rate when the worst of the pandemic has blown through and Wayfair’s bricks and mortar competitors open for business once more. If not, Wayfair may have to find a new way forward.

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