Is Overstock And Wayfair The Same Company

Is Overstock And Wayfair The Same Company – In the context of evaluating a company for a subscription business, most people talk about the health of their customer base. Blue Apron is a notable recent example, but it was heartening to hear Raised Real’s CEO highlight the company’s impressive retention rate as a sign of the business’s health and vibrancy ( link ). It was also encouraging to hear the head of a marketing firm emphasize the importance of acquiring customers and maintaining Stitch Fix’s valuation in its upcoming IPO (link). However, the one thing in common behind all these examples is that they are all subscription-based businesses. As noted in this article, PE and VC investors love subscriptions, and one reason is that it’s easier to measure customer value in a subscription environment.

But what about unsubscribed businesses? There are more unsubscribed businesses than there are, and customer health is critical to business sustainability. While the pulse of the customer is more important to non-subscription businesses, we’ve seen less progress in terms of the model here, and there’s a reason for that – it’s more difficult. We cannot track customer attrition and customer orders and order costs may vary between customers and over time.

Is Overstock And Wayfair The Same Company

Wharton Professor Peter Fader and I have worked hard to create a customer valuation model that has a non-subscription counterpart to the methodology developed for evaluating and analyzing subscription businesses. Finally, we’re excited to share the results with you – our paper proposing a customer scoring method for non-subscription businesses is available here. We apply the methodology to two publicly traded companies, Overstock.com and Wayfair, evaluate both, and then compare the unit economics of newly acquired customers.

Why Overstock’s Pivot To Home Will Pay Off In The Long Run

Although I thought you would find the whole article interesting, it is over 50 pages long, so I thought it would be helpful to summarize our main takeaways here. To summarize, we undervalue Overstock slightly (we estimate a fair value of $16.88, ~9% from their current price of $15.50, with a 95% confidence interval of $7.2 to $26.9) , while Wayfair is overvalued (we estimate a fair value of $10.24, ~84% below its share price of $64.16, a fair value of more than $45 is unlikely) and Red Rose is a very difficult enterprise economy (for purchasing customers) Q1 2017, Overstock loses $9 per customer, while Wayfair loses about $10). I will open this sentence below.

We fit our statistical model to available customer data for both companies (see the document appendix for the OSTK and W datasets), resulting in future revenue forecasts for both companies. We then derived discounted cash flow valuation models from these earnings forecasts and converted these earnings forecasts into stock price forecasts. In the spirit of complete transparency, we detail each assumption we make in both DCF models.

Although these point estimates are our best guesses as to what the appropriate estimates of OSTK and W are, we want to acknowledge that our point estimates may be in error. We used a bootstrapping procedure to generate alternative yield forecasts that accounted for uncertainty in the fit of our models, which provided us with a valuation distribution. The more uncertain we are about our estimates (for example, if we have limited data, as with Wayfair), the wider and more dispersed the distribution of estimates.

We want to make sure that our model fits the observed data. Overstock’s expected and actual quarterly customer purchases (top row), total orders (middle row), and total revenue (bottom row) are shown below:

Overstock Ceo: More Photos, Videos, Metaverse Like Ar Needed To Cut Furniture Returns

Are we getting every move and movement? No. But we capture the underlying trends in all measures very well, which is even more impressive because the only covariate we allow in the model is seasonality in Q4. Occam’s Razor applies in many cases where the data is very limited – if we load the model with a number of additional covariates, it is highly doubtful that the accuracy of the out-of-sample prediction will improve, although they certainly show the above graphs (small ) better.

Overstock’s earnings forecasts are shown below on the left and the stock price breakdown on the right:

We believe Wayfair’s fair value is $10.24, which is 84% ​​below the current share price. At the moment, there’s no doubt that the future at Wayfair is more uncertain. While our primary expectation is that quarterly revenue will double from current levels to $2.3 billion in Q4 2022, the initial quarterly revenue is more than $12 billion. Even in this best-case earnings scenario, the fair value of Wayfair stock is $57, which is still about 11% below Wayfair’s observed price. These results are also valid for assumptions about Wayfair’s future margins (our base case scenario is that their margins within five years are at the midpoint of long-term margin targets presented by Wayfair management in recent conference calls) and discount rates (our base case scenario Here’s Bloomberg’s WACC figure for the first quarter of 2017).

In contrast, using the same methodology, we find that Overstock’s fair valuation is 9% of its current stock price.

Wayfair Posts $378m Loss, Struggling To Keep Shoppers Gained At Start Of Pandemic

While we do our best to reasonably incorporate uncertainty into our predictions, I’m sure there will still be plenty of people who are skeptical of these predictions…or any predictions at all. they do not match. investment theses. An important test, without making any assumptions about future customer acquisition, is simply to see what these numbers mean for the profitability of newly acquired customers. Correctly calculating the time value of money gives us what the lifetime value of customers is today. We compare Overstock and Wayfair in this way by looking at the initial customer acquisition cost (CAC) to acquire a customer and looking at the variable cash flow stream after customer acquisition, which is calculated as follows:

Wayfair’s customers earn more after acquisition – the net present value of future profit after acquisition is $59 and $47 per customer for Wayfair and Overstock, respectively. However, Wayfair spends more to acquire new customers than Overstock. Wayfair’s CAC is $69, nearly double Overstock’s $38 to acquire customers.

While it is claimed that some of Wayfair’s advertising costs will be spent on customer retention, the proportion will be small, and because Overstock is a more mature business, its corresponding share will be greater than Wayfair’s.

If Wayfair can lower its CAC to Overstock, we think Wayfair’s expected value will double. Of course, not everything is equal – Overstock follows a conservative customer acquisition strategy and acquires a small number of customers with a higher lifetime value. We estimate that Overstock made about $9 per customer, while Wayfair lost about $10 per customer in Q1 2017. Although we expect the unit economics of Wayfair’s newly acquired customers to improve going forward as their contribution margin expands and becomes more challenging. The unit economy is a reality for entrepreneurs and plays an important role behind their relatively modest valuations.

How To Sell On Overstock And Wayfair Using Product Content

This summarizes the most important aspects of our analysis. See the paper for all the bold details. Consumer health concerns and the markets are waking up to this reality – Wayfair shares are down 11% (or $800 million in equity) since we published this article with no news other than a few tweets about the case from Citron Research (link, link) . See the graph below. Its shares are down 8.8% today, the biggest share price decline in more than a year. But like the customer, the long-term plan is more important than the short-term.

It’s kind of a Q&A because we get a lot of questions and comments. This section is under development, so check back for updates!

Initial Revenue Expectations: We do not expect the online furniture retail category to peak in 2022. A few key points:

From their margin projections. In other words, we predict that their adjusted EBITDA margin will grow to 9% of sales and then stay there…indefinitely. This is not a pessimistic assumption.

Can Overstock Reroute Its Road To Irrelevance?

Regret: Given the circumstances, cries of “You’re biased” were probably inevitable. A few points about this: (a) Peter and I have never been long or short in any company, so we are not “off the books”. (b) Neither Peter nor I have received any payment, directly or indirectly, from anyone who has lost the value of either share. If you want to confirm, I’d be happy to do a test. © Basic document to a

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