It's like deja vu. Three months ago, after Wayfair's (NYSE: W) third-quarter earnings release, I wrote:
Those words can pretty much be copied and pasted (as I did) after the fourth-quarter release this week. Investors pushed shares down 22% after the fourth-quarter numbers were released.
Wayfair earnings: The raw numbers
Before diving into the nitty-gritty details, let's have a look at the headline numbers for the quarter.
It's not hard to see why investors were disappointed. Sales were booming during the holiday quarter -- showing that the company is clearly gaining traction with customers who are looking to order furniture online. But the bottom line was not encouraging.
"Across North America and Europe, we continue to expand the footprint of our Wayfair Delivery Network and CastleGate, offering faster and more seamless delivery across more products and regions than ever before," said CEO and co-founder Niraj Shah.
That expansion doesn't come cheap. During the fourth quarter, Wayfair spent $25 million on property and equipment capital expenditures, and $12 million on site and software development.
This doesn't mean that the company has an impenetrable moat: Amazon.com is the 800-pound gorilla that has an even more extensive fulfillment network that could quickly rival -- and undercut -- Wayfair. And if Walmart ever wanted to enter the game, it would have potential as well.
That being said, these investments do provide protection from upstarts rivaling Wayfair's business model. Smaller companies would have to spend a fortune to match Wayfair's delivery capabilities and shareholders would likely be able to see such competition coming long beforehand.
There are a number of critical metrics I've longed tracked to measure the underlying strength of Wayfair's business. The company showed healthy progress on all of them.
In essence, Wayfair continues to win over customers and keep them coming back. That's not the surest sign of an impenetrable moat, but it's the closest thing that Wayfair can offer investors at this point, and it has consistently trended in a positive direction.
It's also worth noting that international direct revenue jumped 91% to almost $200 million in the quarter, and accounted for 13% of all revenue for Wayfair. Investors should expect continued heavy investments, especially in the company's effort to push into the U.K. and Germany.
Wayfair's first-quarter guidance calls for direct retail revenue to grow between 40% and 43%, to a midpoint of $1.33 billion. The United States business is expected to grow between 34% and 37%, while international sales -- working off a much smaller base -- is expected to grow between 85% and 95%.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brian Stoffel owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Wayfair. The Motley Fool has a disclosure policy.