Wayfair Inc. · NYSE:W
Wayfair — Investor Presentation (November 2017)
36 slides from Wayfair's investor presentation, November 2017
Slide 1: Investor Presentation
Investor Presentation November 2017 CONFIDENTIAL
Slide 2: Safe Harbor
Safe Harbor This presentation contains forward-looking statements. All statements other than statements of historical fact contained in this presentation, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management
Slide 3: Our Mission
Our Mission To transform the way people shop for their homes 3
Slide 4: A Clear Online Leader in Home Goods
A Clear Online Leader in Home Goods $4,266 • MASSIVE ONLINE CATALOG with over 8,000,000 home products • INVENTORY-LIGHT MODEL partnering with ~10,000 suppliers • FOUNDER-LED since inception; co-founders own significant equity $3,380 • $4.27 BILLION of LTM net revenue with minimal inventory • 42% Q3
Slide 5: Large, Highly Fragmented Market Moving Online
Large, Highly Fragmented Market Moving Online Significant Upside in US Home Market Growth by Channel Online Penetration Estimated Online Penetration of CAGR Selected Verticals ‘16-’20 ‘20-25 4.1% 4.1% 35% 20% $386 9% $316 $96 15.0% 15.0% Home Goods Apparel Consumer ($US in Billions) Electronics $269
Slide 6: Home Is Largely Browsed…
4 Home Is Largely Browsed... 2 gely Froe Shipping Over $48" | Upto 70% OFF Annual Uphelelery Evant » WWayFair cvpeimenie rooms insiraion so 6 Backsplash Ideas to Steal form yourkichen *wayfair «
Slide 7: …And Not Searched
…And Not Searched Most ecommerce shopping is done via branded search This is not possible in home where brands are not known… Leading Furniture and Home Décor Brands …And consumers can’t describe what they are looking for 7
Slide 8: Unlike Other Retail Categories, Home Shoppers Desire Uniqueness
Unlike Other Retail Categories, Home Shoppers Desire Uniqueness CPG Category Example: Home Category Example: Paper Towels Lighting VS. 8
Slide 9: Wayfair Is Focused on Mass Market and Well-Positioned vs. Other Retailers
Wayfair Is Focused on Mass Market and Is Well-Positioned vs. Other Retailers Our typical customer: 35 to 65 year old woman with annual household income of $50k to $250k; comScore median household income of $82k High End Design Centers ($175K+) Mass Market ($60K-$175K) Low End ($60K) 9
Slide 10: Five Distinct Home Sites Each with Unique Brand Identity
Five Distinct Home Sites Each with Unique Brand Identity Est. 2011 Est. 2011 Est. 2006 Est. 2014 Est. 2017 An online destination Where beautiful Your home for affordable A collection of classic Unparalleled access to for all things home furniture and finds meet modern design furnishings and timeless
Slide 11: Brand Awareness Has Grown to 84% Since Wayfair Brand Launch in 2011
Brand Awareness Has Grown to 84% Since Wayfair Brand Launch in 2011 US Aided Brand Awareness 84% All TV buying moved in-house Began Ramping TV Ads Launched first magazine partnership with First HGTV integration Coastal Living launched with “Brother vs. Brother” Tested TV Ads February 2012 October 20
Slide 12: Investing in Advertising Across Multiple Channels
Investing in Advertising Across Multiple Channels • Three broad advertising channels - Online, TV and Direct Mail • Online is the largest channel followed by TV and Direct Mail • Strict adherence to channel derived ROIs • Proprietary advertising technology stack Online TV • Display • Social • Transa
Slide 13: Award-Winning, In-House Customer Service Organization
Award-Winning, In-House Customer Service Organization • Over 1,700 customer service employees located in the US and Europe • Winner of multiple awards for best retail customer service • Specialists with deeper expertise and training for select areas of the catalog, such as lighting, flooring and uph
Slide 14: Proprietary Software Powers Key Parts of Our Business
Proprietary Software Powers Key Parts of Our Business • Company culture deeply rooted in technology and data • Over 1,200 engineers and data scientists • Becoming employer of choice for engineering and developer talent in Boston Examples of Proprietary Technology Ad Tech Stack Storefront Business Op
Slide 15: Growing Our House Brands in Partnership with Suppliers
Growing Our House Brands in Partnership with Suppliers • House brand penetration of Wayfair.com revenue is growing rapidly • Partnering with suppliers to develop over 70 proprietary brands with exclusive products and no inventory • Products are photographed and merchandized by Wayfair to create a cu
Slide 16: Investing in New Categories to Grow Share of Wallet
Investing in New Categories to Grow Share of Wallet Home Improvement Wedding Registry & Housewares • ~$45 billion US addressable market • ~$5 billion US wedding registry market and • Focused on the finished areas of plumbing, $25 billion US housewares market lighting, flooring that our customer choo
Slide 17: Large Incremental Addressable Markets in Canada, UK & Germany
Large Incremental Addressable Markets in Canada, UK & Germany • Europe total addressable market approximately equal to North America • Localized Wayfair sites currently live in Canada, the United Kingdom and Germany • Fragmented markets with no real online market leader; competitive landscape simila
Slide 18: 3D Models Enable Visual Imagery and Augmented Reality
3D Models Enable Visual Imagery and Viewing 3D Products in context with Augmented Reality • 3D images allow for inspiring visual imagery without the expense of product samples and physical photo studios • Augmented Reality allows customers to preview accurately sized 3D models in their homes. This f
Slide 19: Search with Photo: See it Anywhere, Buy it on Wayfair
Search with Photo: See it Anywhere, Buy it on Wayfair • Search with Photo capability enables shoppers to conveniently find the product they are looking for on Wayfair • Wayfair shoppers are able to simply take a photo, or upload an image, of a product they like and Wayfair will leverage artificial i
Slide 20: Home Category Characterized by Heavy, Bulky, and Damage-Prone Items
Home Category Characterized by Heavy, Bulky, and Damage-Prone Items Average Wayfair Small Average Wayfair Large Parcel Item Parcel Item • ~30 pounds • ~80 pounds • ~3 cubic feet • ~22 cubic feet 20
Slide 21: Investing in Proprietary Logistics Network Purpose-Built for Home
Investing in Proprietary Logistics Network Purpose-Built for the Home Category • Traditional drop-ship network leverages technology integration into supplier warehouses • CastleGate warehouses forward-position supplier inventory to create very fast delivery for small parcel (1 – 2 day) and large par
Slide 22: CastleGate Warehouses Enable Next-Day & 2-Day Delivery for Small Parcel
CastleGate Warehouses Enable Next-Day & 2-Day Delivery for Small Parcel¹ Traditional Drop Ship Model for Small Parcel Example SUPPLIER WAREHOUSE IN FEDEX / UPS END CUSTOMER IN SOUTHERN CALIFORNIA NEW YORK 6-8 total touches, 4 – 5 day delivery time CastleGate for Small Parcel Example¹ CASTLEGATE WARE
Slide 23: Wayfair Delivery Network (WDN) for Large Parcel Deliveries
Wayfair Delivery Network (WDN) for Large Parcel Deliveries • Wayfair Delivery Network (WDN) describes several areas of our large parcel network where we are taking direct operating control instead of relying on contracted third party operators • Enables schedule in cart, faster delivery speeds, incr
Slide 24: Wayfair Delivery Network (WDN) for Large Parcel Deliveries
Wayfair Delivery Network (WDN) for Large Parcel Deliveries • Wayfair employees inside the four walls of the last mile home delivery facility; highly trained drivers running trucks out to the customer’s home • Feedback loop and incentives consistent with our brand, including bonuses based on the NPS
Slide 25: Wayfair.com Revenue/Customer/Month
Wayfair.com Annual Cohort Performance as of 9/30/17 $24x • Each cohort line is a function of the percent of $22x customers in the cohort who make repeat purchases $20x and how much these repeating customers spend Wayfair.com Revenue/Customer/Month $18x • Cohort lines show a steady tail of repeating
Slide 26: Customer Economics Continue to Improve: Strong Customer Acquisition
Customer Economics Continue to Improve: Strong Customer Acquisition 10.25 9.55 8.85 8.25 7.36 6.67 6.07 5.36 4.59 4.04 $406 $408 3.60 $404 $402 $392 $395 $394 3.22 2.86 $381 2.64 $371 2.41 $357 $342 $342 $346 $332 $323 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'
Slide 27: Customer Economics Continue to Improve: Growing Repeat Orders
Customer Economics Continue to Improve: Growing Repeat Orders Orders from repeat customers (’000s) Orders from new customers (’000s) 2,880 2,739 2,544 2,622 1,943 1,679 1,659 1,687 1,983 1,839 1,282 1,669 1,656 1,109 1,473 968 1,412 1,337 856 1,243 577 654 1,042 560 846 829 850 659 561 524 60.4% 61.
Slide 28: Capital-Efficient Business Model
Capital-Efficient Business Model Inventory Receivable and Payable Days1 $4,266 41.9 $3,380 $2,250 $1,319 $916 1.9 $15 $20 $20 $19 $19 2013 2014 2015 2016 LTM Days Receivable Days Payable ($M) Q3'2017 Net Revenue Inventory FCF Performance Consistently Better than Adjusted EBITDA 1 Average of last fou
Slide 29: Long-Term Target Model
Long-Term Target Model Long-Term 2014 2015 2016 Q3 2017 Target Net Revenue 100% 100% 100% 100% 100% Gross Margin 23.6% 24.0% 24.0% 23.6% 25 - 27% Customer Service + 4.1% 3.6% 3.7% 3.5% 4% Merchant Fees Advertising 14.5% 12.4% 12.1% 11.8% 6 - 8% Primarily headcount Merchandising, Marketing, 3.9% 4.0%
Slide 30: Key Strategic Priorities
Key Strategic Priorities • Continue building our leading retail home brands • Grow active customer base • Increase repeat purchasing • Continue scaling depth, breadth and penetration of our house brands • Invest in product/technology to further improve the customer experience • Grow newer categories
Slide 31: Appendix
Appendix #waytair 31
Slide 32: Segment Adjusted EBITDA ($ in Millions)
Segment Adjusted EBITDA ($ in Millions) Q1'16 Q2'16 Q3'16 Q4'16 FY 2016 Q1'17 Q2'17 Q3’17 US Direct Net Revenue $672.7 $702.4 $759.7 $858.6 $2,993.4 $837.6 $976.7 $1,033.7 Direct Growth 91.5% 67.9% 45.6% 31.3% 53.9% 24.5% 39.0% 36.1% US Total Net Revenue 705.9 732.7 787.8 884.1 3,110.5 858.0 997.1 1
Slide 33: Reconciliation of Adjusted EBITDA ($ in Millions)
Reconciliation of Adjusted EBITDA ($ in Millions) 2014 2014 2015 2016 Q3 2016 Q3 2017 Net Loss ($148.1) ($77.4) ($194.4) ($60.9) ($76.4) Depreciation and Amortization1 $22.0 $32.4 $55.6 $15.5 $22.9 Equity-Based Compensation2 $63.2 $33.0 $52.0 $15.3 $19.6 Interest (Income) Expense, net ($0.4) ($1.3)
Slide 34: Reconciliation of Free Cash Flow ($ in Millions)
Reconciliation of Free Cash Flow ($ in Millions) 2014 2015 2016 Q3 2016 Q3 2017 Net Cash Provided by Operating $4.1 $135.1 $62.8 $15.6 $24.7 Activities Purchase of Property and ($31.9) ($44.6) ($96.7) ($20.4) ($31.0) Equipment Site and Software Development ($14.1) ($17.5) ($31.4) ($9.2) ($12.2) Cost
Slide 35: Total Headcount by Functional Group
Headcount Summary • Total headcount of 6,890; 841 net new FTEs in Q3 2017 • These employees augment existing business areas (e.g., customer service) but also help us build new revenue streams (e.g., international, new product and service offerings) Customer Service, Merchandising & Operations, Techn
Slide 36: Illustrative Customer Acquisition Cost
Illustrative Customer Acquisition Cost (All units in millions, except per customer figures) 2016 Total Advertising Spend $409.1 Partner Ad Spend (1) $11.0 Direct Retail Ad Spend $398.1 Active Customers 8.25 Total Orders 14.06 % of Orders from Repeat Customers 57.1% Implied New Customers (2) 6.04 Cus