Wayfair Beats Earnings Expectations – Again

In the eCommerce landscape, conventional wisdom tends to the idea that Amazon’s gravity in digital commerce is so overpowering that it is all but impossible for any entity smaller than Walmart to ever meaningfully compete against them.

And a lot of experts have their doubts about whether Walmart – even with its more than $3-billion acquisition of Jet.com – can race against Amazon long term.  That belief in the Amazon effect is not unfounded. Depending on what figures one prefers, Amazon is responsible for 35 percent to 45 percent of all U.S. eCommerce; and it is widely expected to grow to as much as 50 percent within the next four to five years.

It’s a formidable challenge for any other eTailer surveying the marketplace.

And yet, with the release of its latest earnings report, Wayfair continues to perform admirably under the strain; with better than expected results and a big jump in its stock price (at least at first) to market it.

“Home is a pretty unique category, that I think consumers think about it differently than grocery or consumables and paper towels and their TV, where they all want to buy the same items and mainly replenish those items,” Wayfair CEO Niraj Shah said in an interview on CNBC’s Closing Bell on Tuesday. “At home you want unique items.’

So what does a better than expected result look like for an eCommerce player trying to own a niche of digital retail outside the Amazon orbit?

By The Numbers

Wayfair is still reporting losses as opposed to profit. Its Q2 earnings came in stronger than expected, with a loss  of 26 cents per share, as opposed to the 46 cents per share analysts were anticipating.

Net revenue saw a year-over-year uptick of almost 43 percent to $1.1 billion, and user growth clocked in at a year-to-year 43 percent, bringing Wayfair’s customer base to 9.5 million active users. Of all orders placed during the quarter, encouragingly, 61 percent came from previous customers.  Operating expenses increased 30 percent.

The firm also noted that it now has 7 million square feet of storage space – up from 1 million 18 months ago and announced that deliveries are getting faster.  In major metro areas, small package delivery is down to two days and large package deliver clocks in at 14 days.

“We are pleased to report yet another exceptional quarter with strong momentum in revenue growth and profitability,” Shah said in a post-earnings release.

“As consumers increasingly embrace the selection and convenience of shopping online instead of in physical brick-and-mortar stores, we are taking advantage of that shift and capturing market share by offering a truly differentiated, customer-centric shopping experience.”

Beyond The Numbers

Shah during his call with investors discussed Wayfair’s commitment to not only providing a better eCommerce shopping experience in home furnishings but also pushing the technological limits of what a digital shopping experience can be.

“From our new Search with Photo feature that allows customers to quickly find exactly the right item in a matter of seconds to our pioneering work in augmented reality technology, making it possible for shoppers to see items in their home at scale before they make a purchase, we are reinventing retail and raising the bar on customer experience each and every day.”

Augmented and virtual reality applications were a topic of interest during the call with investors post release, as Shah noted that the technology remains “in its infancy” and in need of greater specialized development so that consumers really can import and improve upon the “real-world” experience by using augmented digital channels.

“That’s why we’re excited to have recently introduced the room planner feature to our idea boards enabling shoppers to easily create a conceptual view of the room they’re designing in Wayfair,” Shah says. “It’s early days for room planner, but as our 3D image library grows, customers will be able to create rich and malleable views of the room they’re planning in a way that we think will be industry leading.”

Wayfair’s CEO also called out the firm’s burgeoning partnership with device maker Asus on the launch of the new Asus Zenfone AR.  The new phone model is designed to support virtual reality and augmented reality capabilities, Shah says.

“We’re delighted that our Wayfair AR shopping app will be one of three apps and the only non-gaming apps used in Verizon’s in-store demonstrations and related promotions. We’re very pleased to have been part of the launch and to be in a position to learn from the experience of the early users of this technology.”

Wayfair, of course, still has a long way to go, both in terms of developing out that technology to wider use and building out to a profitable business, but over the last several quarters it has managed to consistently surprise the market with better than expected earnings results. It did lose the initial perk up in stock, which was replaced by declines, and the stock ended up closing six percent down on the day. Piper Jaffray analysts attributed the stock drop to conservative margin guidance for the third quarter, combined with increased advertising spending and employee hiring.

But Wayfair pushes on and against all odds continues to buck the eCommerce trend by continuing to successfully go its own way.