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Wayfair’s (W) Profit Spike Can’t Hide a Shrinking Customer Base

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Wayfair’s Q2 revenue grew 5%, its strongest since 2021. But with fewer active customers, the company is betting on higher spending from a loyal base.

Wayfair’s (W) Profit Spike Can’t Hide a Shrinking Customer Base

Wayfair (W) stock has rallied over 50% in the last six months as its e-commerce business fights back post-pandemic, suggesting that consumer spending on home goods is picking up again. Its second-quarter earnings report further strengthened the case, with Wayfair boasting 5% year-over-year revenue growth, a rare sight following years of revenue declines.

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While its stock has been richly rewarded, I am Bearish on W due to intense competition, ongoing pressures on consumer spending, and a contracting active customer base. Moreover, after some topsy-turvy range-bound trade for over three years, the stock is now flirting with a significant multiyear high of $83.

Wayfair’s Road to Recovery Started This Year

Taking a step back, Wayfair’s sparkling second-quarter was years in the making. The pandemic fueled a boom in home goods spending in 2021, but it rapidly subsided the following year. In fact, Wayfair’s second quarter 2022 report saw revenue plummet 15% year-over-year.

The company also swung from significant profit to a massive net loss of $378 million. Wayfair then pivoted toward aggressive cost management. Although revenue continued to decline in 2023, it was more modest, and Wayfair’s cost savings were paying off. Recently, revenue reversed course, and the company has returned to profitability. 

Indeed, Wayfair’s Q2 revenue grew 5% to $3.3 billion. Adjusted EBITDA was $205 million. Its ability to generate a net income on nearly the same amount of revenue in the prior three Q2s demonstrates a fundamental improvement in the company’s operating leverage. 

Unpacking Wayfair’s Customer Metrics

It’s not all positive, though. Wayfair’s active customer count continues its slide. In Q2 2021, it was 31.1 million. At the end of Q2 2025, it stands at 21 million (down 4.5% year-over-year). Notably, the decline in customer count is being offset by a rise in the value of each transaction per customer. Average Order Value (AOV) increased to $328 in Q2 2025, from $313 in Q2 2024. AOV gains are being attributed to outperformance in Wayfair’s specialty and luxury retail brands. So, Wayfair is appealing to more affluent customers.

Looking ahead, Wayfair expects growth of “low to mid-single digits” in Q3. So, clearly Wayfair’s investment appeal has changed a bit. Years ago, it was seen as a hyper-growth startup. Today, it’s more of a durable e-commerce leader focused on sustainable, profitable expansion. 

Valuation, Competition, and Debt Weigh on Wayfair

The core issue with Wayfair is that it’s still priced like a high-growth stock. Its forward P/E ratio is currently at 101—nearly a 500% premium to Consumer Discretionary sector peers—implying lofty growth expectations that may be difficult to fulfill, especially as its active customer base continues to decline. While average order value (AOV) has improved modestly in recent quarters, there’s a limit to how much it can offset persistent user attrition.

A significant share of the pressure stems from formidable competitors like Amazon (AMZN) and Walmart (WMT), which benefit from larger, growing customer bases, faster delivery capabilities, and greater operational efficiency. Wayfair’s shift toward profitability isn’t entirely strategic—it’s a forced pivot in response to intensifying competition, macroeconomic challenges, and rising debt burdens. Notably, the company’s debt-to-assets ratio has surged to around 180%, highlighting the financial strain it faces.

Having all that debt and little cash generation makes it very difficult for Wayfair to pursue growth opportunities. While its pivot to profitability signals a viable business model, it isn’t primed for the sustainable growth that appears implied by its valuation. Moreover, year-over-year comparisons will not become any easier, any time soon.

Finally, Wayfair’s stock beta of 2.57 implies that the decline could be just as volatile as the rise in recent months. Should Wayfair show any signs of cracking during this subtle turnaround, its stock could go the opposite way in a hurry.   

Is Wayfair a Good Stock to Buy Now?

On Wall Street, Wayfair sports a Moderate Buy consensus rating based on 18 Buy, 12 Hold, and one Sell rating in the past three months. Wayfair’s average stock price target of $75.28 implies a marginal downside potential of less than 1% over the next 12 months.

See more Wayfair analyst ratings

Following Wayfair’s second-quarter earnings report, analyst Nikhil Devnani of Bernstein assigned Wayfair a Hold rating with a price target of $70. Despite the impressive performance, the analyst expressed caution regarding the “sustainability of mid-single-digit revenue growth and potential impacts from tariffs.” Moreover, he noted that “the overall sector’s stability is not yet assured.” 

Wayfair Delivers a Solid Q2 as Operational Questions Linger

Wayfair’s second-quarter results require some nuanced consideration. While its cost savings and product mix have offset losses from declining active customers, formidable competition and a macroeconomic environment marred by uncertainty do not bode well for prospects in the home goods niche — a niche that Wayfair intends to dominate.

In this vein, I have to agree with analyst Devnani’s concerns: growth and profitability remain significant uncertainties for Wayfair. While the company ought to pop the champagne in celebration of a solid earnings report, its most challenging work lies ahead. Given the confluence of challenging factors and the recent stock price exuberance, I’m cautiously Bearish on Wayfair while expecting a sell-off in the coming weeks.

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