Wayfair Inc. — FY2020 Form 10-K
Business context and reporting period: This filing covers the fiscal year ended December 31, 2020, rather than Q4 alone. Wayfair operates an online home-goods platform, with U.S. and International segments (Canada, the U.K. and Germany). The U.S. generated 84% of annual revenue. The company offered more than 22 million products from over 16,000 suppliers and reported 31.2 million active customers at year-end.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net revenue | $14.145 billion | $9.127 billion |
| Gross profit; gross margin | $4.112 billion; 29.1% | $2.147 billion; 23.5% |
| Operating income (loss); operating margin | $360 million; 2.5% | $(930) million; (10.2)% |
| Net income (loss); diluted EPS | $185 million; $1.86 | $(985) million; $(10.68) |
| Cash from (used in) operations | $1.417 billion | $(197) million |
| Free cash flow (non-GAAP) | $1.082 billion | $(598) million |
| Adjusted EBITDA (non-GAAP) | $947 million | $(497) million |
Revenue rose 55.0% year over year. U.S. revenue grew 53.3% to $11.901 billion; International revenue grew 64.8% to $2.244 billion. Active customers increased 53.7% to 31.2 million; 70% of 2020 orders came from repeat buyers. LTM revenue per active customer rose 1.1% to $453, while average order value declined to $232 from $241.
Cost of goods sold was 70.9% of revenue, down from 76.5%, reflecting merchandising gains and logistics efficiencies. Operating expenses fell to 26.5% of revenue from 33.7%; advertising was 10.0% of revenue versus 12.0%. Net interest expense increased to $146 million from $55 million, primarily due to convertible-note issuances.
Liquidity, debt and capital
At year-end, cash and cash equivalents were $2.129 billion and short-term investments were $462 million; total cash and investments were approximately $2.6 billion. Working capital was $880 million, compared with a deficit of $234 million a year earlier. The company reported $3.3 billion of debt outstanding at principal value; balance-sheet long-term debt was $2.659 billion net of unamortized discounts. No Revolver borrowings were outstanding at year-end under the $200 million facility, which had approximately $57 million of letters of credit reducing availability.
Operating cash flow improved by $1.614 billion year over year. Capital expenditures, as defined in the filing, were $334 million. Cash flow included a $532 million increase in accounts payable and other current liabilities. The company repurchased $380 million of shares in 2020 and reported a $700 million authorization, with $462.8 million remaining at December 31. Total stockholders’ deficit was $1.192 billion.
Material changes, outlook and risks
- Management described 2020 as an inflection to profitability, benefiting from stronger online home-goods demand, customer growth, operating leverage and prior investment in technology and logistics. COVID-19 disrupted normal seasonality: sales volume was unusually strong in Q2 and Q3. Management cautioned that the demand surge may not persist and results may not predict future periods.
- The filing provides no full-year 2021 revenue or earnings guidance. It expects Q1 2021 capital expenditures of $68 million to $78 million.
- COVID-19-related uncertainties include demand normalization, supplier and logistics disruption, delivery surcharges, labor and facility costs, and potential effects on employees and customers. The company reported increased sales and orders since the outbreak but said the full effects remained unpredictable.
- Convertible-note conversion is a material liquidity and dilution consideration. The 2022, 2024 and 2026 Notes became convertible in Q1 2021 under their terms; conversions could require cash settlement or issue shares. Great Hill converted $253.1 million of accreted principal of the 2025 Accreting Notes in January 2021 for 3.49 million shares.
- A shareholder derivative lawsuit filed in November 2020 challenges the issuance of the 2025 Accreting Notes. Wayfair said it could not reasonably estimate potential losses. The filing also identifies competition, customer acquisition costs, supplier dependence, cybersecurity, international expansion, foreign exchange, and sustaining profitability and positive cash flow as key risks.
- The co-founders and affiliates held approximately 78.7% of voting power at year-end through the dual-class share structure. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor facts to verify
- Whether unusually high pandemic-era demand, repeat purchasing and customer growth are sustainable, and how 2021 trends compare with 2020’s disrupted seasonality.
- Cash generation quality, including the contribution from working-capital movements, and whether margins remain improved as shipping costs, surcharges and logistics volumes evolve.
- Debt maturities, conversion conditions, potential cash settlement needs and dilution from convertible notes, alongside the stated debt principal and balance-sheet carrying value.
- International segment economics: it generated $2.244 billion in revenue but reported a $95 million Adjusted EBITDA loss in 2020; U.S. segment Adjusted EBITDA was $1.042 billion.
- Developments in the derivative lawsuit over the 2025 Accreting Notes and any resulting financial or governance consequences.