Wayfair Inc - Class A

Wayfair had another strong quarter with high-single-digit revenue growth and material EBITDA expansion. The manager visited the new Columbus store and is increasingly convinced that the physical retail opportunity will be a significant future growth driver. The company continues to open new locations, with Atlanta, their second store, tracking well ahead of the first, which was already exceeding expectations. This indicates a continued growth inflection on the horizon.

Wayfair had another strong quarter with high-single-digit revenue growth and material EBITDA expansion. Our visit to the new Columbus store reinforced our belief that the physical retail opportunity is a significant future growth driver. The company is actively opening new locations, with Atlanta, their second store, performing well ahead of the first, which was already exceeding expectations. We are excited about a continued growth inflection on the horizon.

Wayfair’s Q4 results further validated the recovery we have been underwriting. Revenue grew 8% year over year (excluding the Germany exit) despite a still-muted category backdrop, while profitability continued to expand, with adjusted EBITDA margins reaching their highest levels in several years. The company expects to accelerate revenue growth throughout the year, exiting 2026 in the double-digit range. Despite this fundamental progress, the share price has remained weak. We view this disconnect as an opportunity and added to the position during the quarter. Wayfair remains a top five holding.

We initiated a position in Wayfair, where we see significant long-term opportunity as e-commerce penetration increases within the home furnishings category. The company’s asset-light model and logistics infrastructure provide a competitive advantage and should allow for meaningful margin leverages as revenue scales, particularly if housing activity and big-ticket spending normalizes over time.

The recent performance of e-commerce company Wayfair, which sells furniture, homewares and decor online, was also impacted by worries about disruption from AI. We believe the balance between risk and reward here remains compelling over the medium term. Wayfair will benefit from any recovery in the housing market and is taking market share in the home furnishings industry.

I trimmed Wayfair (W) on a valuation basis after significant returns in approximately one year. I still like this business and subsequent price declines after these trims make it a candidate for adding back to the position. The company has shown resilience and potential for growth, which keeps it on my radar for future investment.

We added Wayfair (W) to the portfolio following the April taper tantrum, and it delivered exceptional returns. This demonstrates our discipline in turning volatility into opportunity. While we exited the position before the end of the year as valuations no longer offered a margin of safety, we recognize that the business has fundamental tailwinds. A smaller position size allows us to participate in long-term compounding while still managing risk, indicating our belief in the company's potential for future growth.

Wayfair's recent performance indicates a strong rebound potential in the home furnishings market. In Q3, revenue grew 9% year over year, up from 6% in Q2, while adjusted EBITDA surged over 70% year over year. These results suggest that Wayfair's future profit growth is substantial and currently undervalued by the market. The business is positioned well for continued growth as the market recovers, reinforcing our belief in its long-term potential.

Wayfair delivered one of its strongest quarters in recent years, with accelerating growth, expanding margins, and positive free cash flow. Revenue increased roughly 5% year over year to $3.27 billion, marking its fastest top-line growth since Q1 2021. Wayfair generated $205 million of adjusted EBITDA, representing a margin above 6% for the first time since Q2 2021, implying a roughly 27% incremental EBITDA margin. If Wayfair can sustain even moderate revenue acceleration at these incremental margins, profitability and free cash flow generation should expand meaningfully, with EBITDA potentially rising from ~$450 million last year to over $2 billion within the next five years. We believe Wayfair is in the early stages of a multi-year inflection in both growth and profitability that remains underappreciated by the market.

Wayfair reported results that were better than feared and has cited strong demand trends at recent investor conferences. After waiting more than two years for revenue growth to inflect, it now appears—based on both management commentary and recent results—that the tide is finally turning. One key unknown in the e-commerce landscape is the fallout from the de minimis loophole closure, which has negatively impacted Chinese players like Temu and Shein. While it’s too early to know for sure, Wayfair could be one of the key beneficiaries of that disruption.