Why Wayfair Stock Rocketed Higher This Week

Shares of online furniture retailer Wayfair (NYSE: W) soared this week following a third-quarter earnings report that featured solid revenue growth and a big increase in adjusted earnings per share. Despite a rough housing market and tariffs, Wayfair was able to grow revenue and hit its highest adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin since the height of the COVID-19 pandemic. As of 3:45 p.m. ET, shares of Wayfair had gained 23.6% for the week, according to data provided by S&P Global Market Intelligence.

Fewer customers, but larger orders

Wayfair's total revenue rose by 8.1% year over year to $3.1 billion. If not for the exit from the German market, revenue would have grown at a quicker 9% pace. U.S. revenue, which accounts for most of Wayfair's total revenue, grew by 8.6%. International revenue was up 4.6%.

Wayfair had 21.2 million customers as of Sept. 30, down 2.3% year over year. Despite the shrinking customer base, Wayfair delivered 5.4% more orders in the third quarter than it did in the prior-year period. Average order size reached $317, up from $310 one year ago, and more than 80% of orders came from repeat customers.

Wayfair was unprofitable on a generally accepted accounting principles (GAAP) basis, but it produced adjusted earnings per share of $0.70. That's up by more than a factor of 3 from the prior-year period. Adjusted EBITDA rose 75% to $208 million, and operating cash flow more than tripled.

These strong results were surprising given the headwinds facing the company. The housing market has been sluggish, and tariffs have been putting pressure on consumers. Nevertheless, Wayfair managed to produce solid growth and improve profitability.

Is Wayfair a buy?

While Wayfair's third-quarter results were impressive, it's hard to say much about sustainability. Tariffs remain an ongoing problem, and the trajectory of the U.S. economy is tough to predict. The company is still not producing GAAP profits, although GAAP operating income was in positive territory during the quarter. While the numbers are trending in the right direction, Wayfair stock looks somewhat risky in the current environment.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Wayfair. The Motley Fool has a disclosure policy.