Wayfair Inc. Q4 FY2024 earnings call

• Fourth quarter was a strong conclusion with net revenue showing positive year-over-year growth, driven by U.S. segment growth. - Highlighted competitive advantages like CastleGate logistics network (approx 90% of CastleGate orders have speed badge, order to delivery dates nearly halved vs third-party logistics, etc.), Wayfair Verified (items have quick identification, physical audit, and editorial videos, driving more visits and revenue), and physical stores like the first Wayfair branded store outside Chicago with positive response and plans for second store and Perigold branded stores. - Technology re-platforming is far along, allowing focus on driving growth. - Advertising spend was high in Q4, with initiatives like Wayborhood campaign, and new campaigns, influencer partnerships, and testing in new channels like YouTube and AppLovin. - Exited German market due to challenging macro, limited scale, and low brand awareness there. - Launched Muse, an innovation in personalized home shopping using generative AI.

For the fourth quarter, net revenue ended at $3.1 billion, up 0.2% compared to the same period last year. The U.S. segment was the driver, up 1.1% year-over-year. Gross margin for the quarter was 30.2% of net revenue. Customer service and merchant fees were 3.7% of net revenue, while advertising was 13.7%. Adjusted EBITDA for the quarter was $96 million with a margin of 3.1%, and full-year 2024 adjusted EBITDA was $453 million at a 3.8% margin.

• First quarter 2025: quarter-to-date just below flat, expected to end flat to down year-over-year with ~100 bps drag from German business exit. - Gross margin guided 30% to 31%, expected midpoint. - Customer service and merchant fees just below 4%. - Advertising expected 12% to 13% of net revenue. - SOTG&A expected $380 million to $390 million. - Adjusted EBITDA margin expected 2% to 4%.

• Macro environment challenges such as tough housing market, high mortgage rates, which can impact customer spending. - Market competition risks, as the home furniture market is fragmented and competitive. - Uncertainty in advertising spend return, as ad dollars have payback windows varying from 60-90 days to longer, and timing mismatch between spend and payback. - Risks associated with technology platform updates, although re-platforming is far along, there could be unforeseen issues during implementation.

Q: Good morning guys. Maybe just first on I guess the relative app performance in 4Q on the top line, what the biggest drivers of that were for you guys? And on our numbers, the AOV was better-than-expected and customer count and orders were a little bit worse, but it sounds like that was in line with your expectations. Was it still predominantly pricing and discount driven?

A: Thanks for your questions. All right, let me start by answering some of this, and then I'm going to pass it off to Kate to try to answer some of the last bit about the guidance kind of contemplation. In terms of the fourth quarter, so we were happy with how the fourth quarter came out. The way to think about it is, you're obviously describing kind of the revenue came in well, but you're talking about kind of orders, AOV. I guess the way to think about that is, the main thing you think about is sort of what's the right offering for the customer, what's the right marketing, the right event cadence, it's holiday. How are you assorting the seasonal goods? How are you assorting sort of kind of door busters and other items? And then how are you just going to, like in our business, it's not like gifting where it's a rush right before Christmas. It's sort of preparing to host at Thanksgiving. It's getting your house ready for the holiday, festive holiday season. It's been hosting again for Christmas. So there's all these things outside of just getting a gift for yourself or for someone else. So I feel like we did a good job with that. And I will just say, we're now in the finished the third year where the market was copying significantly negative. And our strategy has been, how do we deliver the experience that allows us to take share? So the gains are coming out of successfully taking share by the customers choosing to shop with us, even though maybe they're not shopping the category that much. So that's sort of like the way I would kind of frame what we saw with holiday and why we're happy with it and kind of the fact that it was a solid holiday season and how it played out. Now you had a question about now looking forward, you know, share gain's been a big piece of the story, which I totally would agree with. And I think I’m very -- I would point to that as a very important piece of the story, as you'd see in the shareholder letter that we released that today. I talk a lot about that. As we look forward, and I'd say super high level, and you can see this in the shareholder when I talk about the coming year, I'd say that we underwrite a base case that the market does not get that much better. That's a tough market. And why do I say that? Well, you know, housing is in a tough place, the 30-year mortgage rates in a high number. It doesn't make sense for a lot of folks to move. And so rather than underwrite, hey, this is going to get a lot better, we say, well, let's make the base case that it's not. Now, it's a cyclical category. And there's no question that we're down. We've kind of gone through the down cycle. And we must be near the bottom. But rather than try to call the bottom, we just say, hey, we're going to be a big beneficiary now and later and during an up cycle if we focus on just executing well. And what are the things we can do this year that are in our control that let us take market share? And it's a very big and fragmented market. We talk about it being over $0.5 trillion, and it's very fragmented. $12 million for one of the largest players in it. But there's a lot of areas in our business where we say, hey, there's specific things that we think we can do that would let us take share. And when you make a list of these and you say, okay, these are ones we can do, who could own each one or does own each one, what are the metrics, what do we need to do to accelerate them? And you add up what do we think these can do, it could be substantial. So that's the plan we have. And it is based around taking share off the market being tough and we have one big advantage as we go into this year that we didn't have in past years, which is just that we have a large technology organization, but we focused over the last few years I've talked about this going back three years ago in the shareholder letter, that we were putting our technology resource very focused on re-platforming our systems. We had put that off for a long time, but we got to a point where developer velocity was very slow and it was very hard to have stable systems and introduce new feature function into them. And so we made the right, I think, but tough decision to really focus the technology resource on that. So we've had multiple years where we've not been able to drive feature function. And this whole type of product led growth has historically been a big piece of how it's grown. We now have those resources back. So the two, Maria, the two things you asked about are both ones that do leverage technology resource. So on the merchandising platforms, what that refers to is, you know, we built our platform for the complexity of the home categories a long time ago. So in our categories, you know, there's items that have a lot of options, you know, there might be, you know, fabric choices and leg choices and arm choices on a sofa. So there's a lot of complexity in how you want to show items. Some items come in multiple boxes. There's a lot of dynamic in how the catalog needs to be structured. So we set it up for that. Now over time, as the world advanced, there's things that we now know, hey, there's easier ways that we could set it up for our suppliers to work inside our extra net that they work on called Partner Home to work with us. They now have catalogue product information management systems, PIMs, that they now store data in that we want to just automatically integrate, so just through direct connection through the PIM or through an API that they can write to. And these are things that in the old tech stack were difficult to do. So as a result, it creates friction for our suppliers to be able to do the things they want, makes it harder, makes it slower, makes it more error prone. And so what we’ve now are able to do is rather than sort of band-aiding, quick fixing the things that we need to do in the near-term, because the main focus is the re-platforming, what we're able to now do is tackle kind of the bigger solve to make it, we want to be the easiest platform for them to work on where they have the most flexibility and they're able to do things that they cannot do on other platforms, getting at the nature of the goods we sell, the way they want to merchandise these goods. So that's the kind of like the merchandising platform broadly. It's that type of work. We're meaningfully far along in that now, and we think there's a lot of gains to come from that. The other one you mentioned is talking about what we do with promotions. And there are just kind of like two facets to that. One is just, as we've talked about, obviously it's a category that customers have a lot of passion for. So they browse, they shop, they want to know about trends. But the ticket size and the category, it's not de minimis. So it's not like I need some new iPhone cables, 10 bucks, no big deal. So you may care a little more about sale events or when it comes to sale, you may really want to browse and see what's out there. And so the experience for customers when they're shopping on sale events, interfacing that with our ability to personalize those events and really let them find what they're looking for. There's a set of technology around how to sale events manifest that we want to let them experience. And then there's also the supplier side of making it easier for suppliers to launch new promotion types. So on other platforms you may see things like coupons or buy one get one free. There's certain types of very specific promotion types that today in our system we don't support. They're not necessarily the primary way suppliers market in our category. We support those, but they add up. And so we want to make those available. Again, those are not particularly difficult, but when you really have a very scarce amount of technology resource or feature function they wouldn't make the cut. Now all of a sudden, hey, we can add those in the platform. Those in different categories will unlock nice pockets of growth. And so those are two examples of what's a much longer list that you can see how these things add up, I think.