Wayfair spent $196 to win over each new customer it added over the past year, shares crater

Key Points
  • Online home furnishings store Wayfair's shares slide Thursday after it releases disappointing third-quarter earnings.
  • Wayfair says it spent $196 each on its 3.6 million new customers this year.
  • Customer acquisition costs have an adverse effect on the company's bottom line.
Niraj Shah, Wayfair co-founder and CEO
Source: CNBC

Wayfair shares slid by more than 14 percent Thursday morning after the company reported a wider-than-expected loss for the third quarter and high spending to attract new customers.

Over the past year, the online home furnishing store added 3.6 million new active customers, about 35 percent more over 2017, but it's spending a lot to attract them, according to Neil Saunders, managing director of GlobalData Retail.

"Over the same period, spend on advertising was around $707 million. This works out at $196 per new customer. When customers only spend $443 a year, this seems like a rather excessive, and completely unprofitable, acquisition cost," he wrote in a research note Thursday.

Saunders said Wayfair's "customer centricity" has helped it outperform the market, even though its earnings missed Wall Street estimates.

The company's loss widened to $151.7 million, or $1.69 a share, during the three months ended Sept. 30, compared with a loss of $76.4 million, or 88 cents a share, during the same period last year. After adjusting for some tax issues and other items, the company lost $1.28 a share while analysts expected an adjusted loss of $1.09 a share, according to average estimates compiled by Refinitiv.

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