Wayfair sinks after Citron highlights academic paper with $10.24 valuation
Shares of Wayfair (W) are lower after short seller Citron Research highlighted on Twitter an academic paper on the company’s valuation.
The paper states, “We begin by applying the proposed customer-based valuation methodology to data from Overstock (OSTK), an e-commerce retailer selling a wide assortment of products.
We validate the model’s fit, compare the results to alternative methodologies, estimate Overstock’s valuation, then obtain a valuation distribution which accounts for uncertainty in the fitted model parameters. We then apply the methodology to data from Wayfair, a large and fast-growing internet-based home goods seller.”
The paper’s authors, Daniel McCarthy and Peter Fader, estimate that Overstock earned approximately $9 per acquired customer, while Wayfair incurred a loss of approximately $10 per customer in Q1 of 2017.
They write, “While we anticipate that the unit economics of Wayfair’s newly acquired customers will improve in the future as their variable contribution margin is expected to expand, challenging unit economics are a reality for the business, and are an important driver behind their relatively modest valuation.”
They estimate a valuation for Overstock of $16.88 per share and a fair valuation for Wayfair of $10.24 per share.
For Wayfair, the writers explain, “We project revenues over the next 50 years to drive our model for Wayfair’s overall valuation. We assume the long-term growth rate of the labor forces in Canada, the UK, and Germany are equal to their historical averages of 1.2%, 0.9%, and 0.4%, respectively.”
On Twitter, Citron wrote, “Smartest piece EVER written on $W. Not by a short or long. By a team of Ivy League scientists who specialize in predictive models. $10 tgt…Cannot argue with this analysis- target $10 Smarter work than ANYONE on Wall Street has ever done on Wayfair.”
The firm has disclosed publicly in the past a short position in Wayfair.
The online retailer in Friday’s trading is down 7%, or $6.04, to $75.71.
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