IPO Report: Wayfair (W)

Francis Gaskins |

wayfair ipo, wayfair ipo report, ipos this week, stocks to buy now, wayfair stockWayfair ($W) offers visually inspiring browsing, compelling merchandising, easy product discovery and attractive prices for over seven million products from over 7,000 suppliers across its five distinct brands — Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane. It is based in Boston, MA.

Tenother companies are scheduled for the week of Sept. 29, 2014.  The full IPO calendar is available at IPOpremium.

Manager, Co-managers:  Goldman Sachs, BofA Merrill Lynch, and Citi.

Joint-managers: Allen & Company, Pacific Crest Co, Piper Jaffray, Wells Fargo Securities, Canaccord Genuity Co, Cowen & Company, and Raymond James.

W scheduled a $292 million IPO with a market capitalization of $2.2 billion at a price range midpoint of $26.50 for Thursday, Oct. 2, 2014 on NYSE. SEC filings

Wayfair IPO Report

Overview

Through its e-commerce business model, W offers visually inspiring browsing, compelling merchandising, easy product discovery and attractive prices for over seven million products from over 7,000 suppliers across its five distinct brands — Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane.

W’s typical Wayfair customer is a 35 to 65 year old woman with an annual household income of $60,000 to $175,000,

Valuation

Glossary

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing June 6 mos

         

Wayfair (W)

$2,200

1.9

-29.7

6.5

6.7

13%

             

Conclusion

Buy

Top line rev +50% (buyng customers), 23% gross profit

-$22.52 per share dilution

9% loss on rev, P/E of -30

Competitors all have ecommerce websites

Business

W is transforming the way people shop for their homes. Homes are the center of our lives, according to W.

Through its e-commerce business model, W offers visually inspiring browsing, compelling merchandising, easy product discovery and attractive prices for over 7 million products from over 7,000 suppliers across its five distinct brands — Wayfair.com, Joss & Main, AllModern, DwellStudio, and Birch Lane.

W’s typical Wayfair customer is a 35 to 65 year old woman with an annual household income of $60,000 to $175,000, who W considers to be a mass market consumer and who W believes is underserved by traditional brick and mortar and other online retailers of home goods.

Because each of its customers has a different taste, style, purchasing goal and budget when shopping for her home, W has built one of the largest online selections of furniture, home furnishings, décor and goods.

Ships from suppliers to customers

W is able to offer this vast selection of products while holding minimal inventory because W typically ships products directly from its suppliers to its customers.

This supplier direct fulfillment network is a key component of W’s custom-built and seamlessly integrated technology and operational platform, which also includes extensive supplier integrations, a proprietary transportation delivery network and superior customer service.

Background

W’s co-founders are lifetime tech innovators who have worked together in the consumer internet sector since 1995 and have created a company culture deeply rooted in technology.

W employs over 300 engineers and data scientists who continue to improve and enhance its technology platform.

W’s success reflects a deep culture of data-driven decision making, operational discipline and an unwavering focus on customer service.

W’s technology and data focus also facilitates critical e-commerce capabilities such as tailored shopping experiences across its five brands, consumer targeting and personalization, as well as "anytime, anywhere" shopping across its websites, mobile-optimized websites and mobile applications, which W collectively refers to as its sites.

History

W was founded its company in May 2002 and has since delivered over 13 million orders.

From 2002 through 2011, the company was bootstrapped by its co-founders and operated as hundreds of niche websites, such as bedroomfurniture.com and allbarstools.com. In 2006,

W launched AllModern. From 2003 to 2011, W grew its net revenue organically from $7.7 million to $517.3 million, representing a 69.2% compound annual growth rate, or CAGR.

In late 2011, W made the strategic decision to close and permanently redirect over 240 of its niche websites into Wayfair.com to create a one-stop shop for furniture, home furnishings, décor and goods and to build brand awareness, drive customer loyalty and increase repeat purchasing.

W also changed its name from CSN Stores LLC to Wayfair LLC.

Additionally, W expanded its multi-brand strategy beyond its then existing brands — Wayfair.com and AllModern — by launching Joss & Main. In 2013, W acquired DwellStudio, and in 2014, W launched Birch Lane.

Intellectual property

W pursues the registration of its trademarks, including "Wayfair" and certain variations thereon, copyrights and domain names in the United States and certain foreign locations.

As of August 31, 2014, W had 72 trademark registrations and 26 trademark applications pending.

In addition, W had 85 copyright registrations, primarily covering the content it creates for its sites, including its proprietary designs.

W also relies on the protection of laws regarding unregistered copyrights for its proprietary software and certain other content it creates.

W will continue to evaluate the merits applying for copyright registrations in the future. W has registered numerous domain names, including "Wayfair.com," "AllModern.com," and "JossandMain.com."

W has an issued patent regarding its proprietary technology and it is evaluating additional patent applications. W expects to consider filing patent applications for future technology inventions. W also relies on trade secret laws to protect its proprietary technology and other intellectual property.

Competition

W’s competition includes: furniture stores, big box retailers, department stores, specialty retailers, and online home goods retailers and marketplaces, including:

Furniture Stores:  Ashley Furniture, Bob's Discount Furniture, Havertys, Raymour & Flanagan and Rooms To Go;

Big Box Retailers:  Bed, Bath & Beyond, Home Depot, IKEA, Lowe's, Target and Walmart;

Department Stores:  JCPenney and Macy's;

Specialty Retailers:  Crate and Barrel, Ethan Allen, HomeGoods, Pottery Barn and Restoration Hardware; and Online Home Goods Retailers and Online Marketplaces:  Amazon, eBay, and One Kings Lane.

Note: most if not all the competitors also have e-commerce websites. Not clear what W's competitive advantage is, if any.

5% shareholders pre-IPO

Entities affiliated with Battery Ventures               6.07%

Entities affiliated with Great Hill Partners             11.26%

Entities affiliated with HarbourVest Partners         6.93%

Niraj Shah                     28.51%

Steven Conine               28.51%

Neeraj Agrawa                    6.07%

Michael Kumin                  11.26%

Ian Lane                                 6.93%

Dividend Policy

No dividends are planned.

Use of proceeds

W intends to use the $258 million in proceeds from its IPO as follows:

to its existing Series A preferred stockholders upon conversion to common stock in connection with the completion of this offering to satisfy the remaining portion of an accrued cash dividend, which amount was approximately $20.9 million as of June 30, 2014, or approximately 8.1% of the net proceeds, based on the midpoint of the range listed on the cover of this prospectus.

W co-founders and certain of its directors, executive officers and holders of more than 5% of its voting securities hold 85% of its outstanding shares of Series A preferred stock and, as a result of their ownership, will receive 85% of the dividend payment, or approximately $17.8 million as of June 30, 2014.

W also expects to distribute a portion of the net proceeds to satisfy minimum statutory tax withholding and remittance obligations related to the settlement of outstanding restricted stock units upon the completion of this offering, which amount was approximately $14.0 million as of June 30, 2014.

W intends to use the remaining net proceeds to it from this offering for working capital and other general corporate purposes. W may also use a portion of the net proceeds from this offering for the acquisition of, or investment in, technologies, solutions or businesses that complement its business.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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