W - Earnings call transcript Q3 2017

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Operator

Good morning, ladies and gentlemen. My name is Julie and I will be your host operator on this call. At this time, I'd like to welcome everyone to the Wayfair Q3 2017 Earnings Release and Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. time, Corporate like Finance this Donnelly, introduce At of Head at Instructions] I to would Julia [Operator Wayfair.

Julia B. Donnelly

me quarter Good joining morning Co-Chairman; Fleisher, results. Steve third and and Officer Chief us. for Shah, With XXXX Michael Today we Conine, Chief and will review and thank Executive are Niraj you Financial Co-Chairman; Co-Founder, Co-Founder our Officer.

our remind call forward-looking available prepared and financial guidance remarks. that future like We be we to we will We expectations statements and today's I make accurate, cannot statements will this following will believe that assumptions. you for all been performance, we Q&A have for in regarding quarter be events the guarantee during that of although forward-looking would including any fourth XXXX. reasonable

and will available non-GAAP our to the nearest This release refer on being copy filings made XXXX call factors the undertake measures. law, a as to financial differ IR obligation we for and any and new replacements to obtain Please should measures certain a or cause be Company's earnings descriptions together in the no financial we of please Company's of events SEC projected today. certain for otherwise. non-GAAP comparable statements those subsequent which measures Relations or our Web-site any Webcast call, measures GAAP actual identify our performance. the will contains a to considered future replay note with XX-K discuss Investor These forward-looking Except materially Web-site. results could of recorded review revise whether that by Also, as not Our required reconciliations as and we results. to be non-GAAP non-GAAP these for financial during our information, read result should this be statements of GAAP our measures of is update section that publicly from

to to like the call turn Niraj. over I Now would

Niraj Shah

We revenue XX% for year-over-year revenue growth joining In This year-over-year by growing all QX, you thank and net us of Direct million morning. Retail represents XX% year-over-year. in up total was Julia, Thanks, $XXX versus this approximately dollar revenue Direct year with U.S. with last versus our the Direct and businesses, XX% XXX% Retail up U.S. revenue International saw in last business. both QX Direct and QX up continued growth Retail year. International Retail

We are an LTM more provide will XX across and a brief of continue and million engage over people, few buying us delighted see customer this to active from our offering all-time updates I per with Today, over more last shoppers key reaching the areas quarter. high our to year business international and you then making over and I'll very questions. excited Last and quarter updated we our U.K. to customers seeing response we're Canada, in before the Steve investments from Michael your Germany. take the business there remain I turn on and the it and we're we on revenue

areas growth give dollars, long-term in so new strong these add advertising continued teams. core product QX you've strategic customer the of other Two in cycle confidence of from and markets to investment improvements international we're Europe. look there focus their that house in experience, our of continuing the us to XX% a imagery in that in offering and further now and than grow We Our penetration focus fit comprised for we out Canada is inspiration our making time helping I we investing find great of in portfolio major from network and Wayfair.com in chain is XX% our more up Wayfair suppliers. of or Delivery heard brands important suppliers a have the that CastleGate approximately and our and the transformational QX, customers to that In Network us lot approximately to our over build to U.S., on and supply brands continue continued introductions growing about talk program brands house products which this the are house and want and we WDN. existing today as in grew visual brands house XX year, QX, taste. we're more this In revenue, expect more KPIs

growth On last we highlighted the quarter the earnings call our have network. CastleGate significant seen across we fulfillment

and efficiencies in sales. to in small will to parcel network proportion continue XXXX. gain business develop their of The can terms bring the our benefits QX shipped business, network grow further in the greater cost awareness continued suppliers to We we both see and CastleGate CastleGate and U.S. the increased be targeting Europe the of in U.S. being from as growth of

we CastleGate warehouses call, CastleGate major our year open do do to we in new continues last so are our we in to planning next any as and to outlined further. As penetration but business expect scale rises XXXX, not

Germany, a market. to warehouse when CastleGate next in of suppliers that QX operational we'll in to This the in development shoppers add we which continued quarter year, become first will of smaller offering our facility infrastructure enabling and our our in open Europe

now three the facilities through mile us giving coverage and to facilities in to and we deliveries. in their of map. Wayfair delivery just real-time total GPS home interactive parcel of opened delivery our day the Tampa QX, large one-half an XX customers In of the XX track these During the offer WDN of on location we driver U.S. over delivery cities Cleveland, last Denver, of bringing ability

our cross line the in of September large a docks haul. enables network and approximately greater of through business. improve This delivery delivery Turning costs, Wayfair-controlled flowing U.S. network, orders were of XX% and and greater proportion on increase and our consolidation mile parcel mile damage our reliance customer middle satisfaction speeds, the us to reduce reduction to a across middle third-party operators in ongoing of centers,

will in markets results we continue about introduced additional detail the facilities Michael last that WDN more to the with pleased XXXX. been seeing talk are are mile out in we have QX We in expect and later. rolling where facilities

to more customers. We I you advance, run products points. approach and we're best tell season, great we customers us year we to us our throughout analytical promotions into that our we is to position retailers. to aspects of As think business, will bring business Two that from price about us and to the the and model to in want in to up bring promotional how them business often attractive very events innovate different approach a offers other the possible put across the year enable an the plan in excite how enables how promotion we our move to take at holiday

be This promotional offer events and promotional is to with pressure of they to allows we also being at The our promotional an customer pricing very event attractive a run that Wayfair. nimble typical light first inventory more part We wholesale expect events the can suppliers volume us with react when margin behavior. the uplift of because gross model. us associated avoid

and The season. second the pick to of was aspect holiday different able event to ornaments expensive on within been have can the CastleGate. delivered given Wayfair. efficient warehouses, of run our prominence with are would've of from can and on one the in the five for example suppliers very a these relative ensuring opportunity warehouses, customers our site suppliers exact supplier customer able increased for quickly, $XX ran to the as very days, in ornaments, suppliers ornaments one a five delivery. in two orders the with convenient promotional forward to were to large is different result are they By them high from they have that plan quickly and in affordable One want closely can and shipped delivered free We benefit creative particularly and create costs holiday as where to maximize is set which offer we By event, opportunity to CastleGate a from positioning able with of selection important delivery, select working shipping we to we in customers suppliers work that promotional which Traditionally offer a our last it closely inventory we different shipping price package. year a we customers, our ornaments. them many promotions QX be ornaments the have products our suppliers

have part you since our year our turning our able that we XXXX, experience and exceptional in Following to briefly mobile decor throughout capabilities CastleGate everything mobile than customers updated is Giving it other it Wayfair, similar an for the run units comes year. shopping offer with and so we on CastleGate we're growth shoppers to making the Steve. collaborative you earlier at in categories than degree we've well, as I'll in see It's the investment as have choice made a from call half do and now event increasingly the this convenient central taking XXXX. would update for bundles and the the from customers pricing app, a kitchen in the and this doubled before the do that. an on more in without suppliers our we been over of to our across give potential that not we of we and take important year, to be is this We the devices of to devices traffic an we approach to with such channel Wayfair.com number X-for-$XX continue of promotion More share. demand the engage engaging excited in in offers and the utensils, like offering mobile about

significantly devices, great of time believe in that items they their may Mobile completed visit customer to substantial many this home shoppers a in different we've grow multiple growth We and across of shoppers. With we while that time. Idea devices, Our investing mobile mobile app to at experience styles completing their we Web, means XX% desktop invest Board the best maybe as opportunities is Wayfair of in methods offering mobile can creating are saving in home of on to offering the to these considerable showcase purchases customers on penetration, ensure already the sites engagement are with mobile discovering orders features in see the computer. market. capabilities new business expected our this QX on often share they on mobile been looks and and our will over go, they on our part love, the

choice greater their Pay using For customers in integration or how our gives Apple example, phone when pay of tablet. to the

us our a Our customer mobile way service communicate and service. convenient shoppers messaging give to also fast teams with via

both we shopping the last the our have improve speed customers visual while and tools Over of and offering the product. Web the mobile to still year performance mobile help and them find app enhanced perfect to reliability, experience imagery

offer to reality their With highlighted over in X-D iOS leading in team work opportunity preferred home. e-commerce augmented device able building and XX X,XXX shoppers, home. the for our tens quite products app to that launch central As thousands September to treat the own becoming the the of as our capabilities the some shoppers engineers of of of we of their in mobile is for view we've in time, a it we're last in in been experience call, shopping with way building our our now increasingly

Turning is had Android, app and put Not being to by in iOS are This of dedicated pleased been we visitors. are many app of specifically exceeded purchase on XXXX, more million compared to a end the choosing other growth convert view average over session rate the using of higher each Xx the of with and importantly, these revenue to have at app phones, times, products million. year and where shoppers end also At App this of that X visitors. level our they XX per our increased team visitors couple the only over number more app of September that it. a our engagement visitors with we're the mobile years. last reflected very other downloaded but of behavior, achieved engineers over their on of

factor gains and they the continued We that and behind will are driving our to excited be mobile share. we use, with to technology be regardless of experience great future happen bringing innovation, believe shopping customers a market a

the about talk advertising to to Steve stack. I'll Now proprietary over technology call turn our

Steve Conine

create, to Niraj. existing new have technology of we In track Thanks external about our and talked in-house want the we role to to and you days that advertising Wayfair, market tell I In both in more calls, how our agencies about and plays approach initiatives. customers. the used spend, previous to marketing early we today programs and deliver

the in-house all leveraging intermediaries, by equipped of more out technology our need proprietary As our spend managed but us by in-house enabled marketing to building and the to investment pace saw has today how scaled, in to compelling take is with our business effective we us of opportunities we more the our system reducing over more our not also giving more innovation. and marketing in The stack, own proprietary by take advertising technology. be work spend us dollars of cost only marketing to control technology

more in-house. effectively Paid and one We technology scientists In continuously. often execute paid activity the of have to agencies, in team to XXXX, businesses the channel. to supporting data all than e-commerce search and is XX is analytical took a this by us search outsourced infrastructure, inherent channel our equipping innovate we dedicated that and complexity engineers competitive pressures given

When product predict one an serve customers more that for keywords or both to home, purchase traffic a to our continue are hone We technology are on in but value may first product product to As order. often determine of to that much proprietary managing serve us data bidding and our and that million market to of combine with marketing an the to browsed team behavior. to can of tactics the our the decor completing historical before third-party not accordingly. relevant how has bidding is itself. bidding the able high If past customer. individual utilize an browsing customer is furniture yet to and consideration, algorithm widely searching be on and pay retargeting wealth customer on history with accurately order, browsing optimal placed in ad platform Wayfair XX a both on to the an customer the we to suggestions decision for set determine ad we more our internally, willing intelligence that or we we order personalized This this based allows

in less and this can are testing our our decisions improving and before, to are to we more enables platform systems that spend of of couldn't. be a The personalized third-party developed of shoppers our will over enables that that and Our become delivered our most ad and our XX us time. range server have this both level growing This in-house a algorithms to confidence base gives in milliseconds. via product with effectively millions than that customer us and impactful technology scale continually means The learning customers us interactions personalize machine the cost have shopped more that market we with group. marketing

event, Our tuned based to recommendation each customer service will determine the investment ideal message product, to or the highly marketing this made in view with build means technology experience our give sale highlight The we've on individual we to are to CRM channels, personalized they on that love. and site, will a them. they stack it them make connect customers we can across products highly easier when

innovative businesses our While we internally, in that working own invested with been are closely platforms building ad also have online in resources we considerable have technology marketing.

us targeting mutual partnerships Google, be others the of making we've believe their Facebook, leading forefront influence edge e-commerce techniques our benefits. put Pinterest, developed the enabled in us at deep new that We of roadmaps, at the have We to marketing. and marketing been generating have and with capabilities investments

ahead. to I'll We that the we the from now build talk rather our to are QX by marketing detail. future decision than excited call the lie financials today in generating considerable and over are strategic technology, gains to buy turn more Michael benefits about

Michael Fleisher

Direct business morning dollar presentation information million, for $X,XXX release with Retail of earnings QX, IR on financial provide In Thanks, highlights year-over-year and XX% in our information $XXX available in Steve, our the the growth quarter, some to and will increased site. our representing investor more million. I good year-over-year approximately everyone. detailed of now key our

to Our total net year-over-year revenue $X,XXX million. increased XX%

down partner partners, business, from but which primarily includes media to our decreased as includes expected continue other Our our revenue million to scale as business, retail retail our from revenue we also business. small $XX

and in customers on of the customer, to Direct increased our from XXX% order customers, seen benefiting quarter of to we in related of German are strong $XXX. highs. our up U.S. net we at our X.XX. from the QX increased these the quarter in non-GAAP our year-over-year LTM businesses $X,XXX the active million Retail future. Direct $XXX totaled This each In XXX,XXX in for we of in was new at proportion Canadian, opportunity excluding a ramp taxes continued financials have global Direct in equity value which repeat and this and Our compensation from LTM I U.S., up million, by by sequentially versus revenue are the high increased orders and QX, to measured orders the a U.K. levels based we to of customers XX% the growth per revenue. KPIs, QX, quarter report the Retail excited International to overall remaining in many million versus Retail all-time year-over-year Average up $XX Purchase active a growth year. which the in penetration new year Internationally, In XX% frequency, last impact as XX.X year-over-year. QX. up continued million will approximately XXXX. basis, on basis, continued active markets customers share dollar consolidated $XXX business million growth QX business, collectively in represents

IR GAAP of please our site. For earnings a refer non-GAAP reconciliation our to reporting, to release on

Our million of net fulfillment all the product net costs, $XXX XX.X% quarter, expenses, gross revenue. of delivery for is or and profit which was

in invest remaining In call, our and $XXX resulting our inventory advertising how was the threshold. up QX quarter payback payback which rates repeat customer expectations. our net of to conversion target opportunities to strength days, up one-year of I the revenue, within further was the On million in of or advertising opening described our spend we in QX, XX.X% with line fully in to continued spend while

expect fourth or ad in continue revenue percent high are net seeing, flat dollars slightly in investing of last the QX, of Looking to and the as out to XX.X% opportunities a QX the we be we to anticipate ad quarter ROI year. above spend level

expense, which combined terminating expense approximately related marketing primarily two one-time and in to compensation operations, are the originally no logistics of in network the use excluding of XXXX, for chose Unfortunately, Utah a items In buildout these anticipate not employees warehouse we of the following closures. location, technology warehouse impact QX, was Utah We XXX efficient our Our as net line new employees, million, Ogden, in XX, of driven merchandising, added XXXX. million costs. quarter, G&A of third any July the and full September non-GAAP were do total longer $XX the country. the $XXX currently across sales by we charges further and XXXX. In our X,XXX

of previously, following technology, The main proprietary QX entered to across our line central Scaling compared with employees continue approximately rate to in developing We're penetration expected investment approximately international our we hiring a out areas. the strong previous early call, categories. as excited in to of area teams such of to priority headcount our variable continuing QX QX network, in XXX quarter. of net more merchandising, XXXX. new new the our teams season. rate delivering in normalized capabilities, and XXX this hiring with growth low we're our our on are areas of areas, operations of three continue in the was we've expect about half in and last warehouses net The building in is as product we customer to is employees teams our headcount great marketing, ramp new in employees I the primarily we to logistics were in be increasing reach net and spoken As second areas operations, advance across up the and and momentum pleased increase hires those continued Approximately and business. outlined in namely the earnings the our with in holiday OpEx build service building our and these adding of XXX in in hiring to XXXX have ramp to people into added

of in P&L quarter the continues and As our in in quarter million was we or line. negative range Adjusted to expectations past, Adjusted buildout WDN for our million weigh ongoing our U.S. on as CastleGate in of the for business million, the OTG&A negative result QX a revenue. facilities, positive to of was of our the $X $X EBITDA net unutilized per rent said the million with in EBITDA line quarter. third for X.X% EBITDA $XX the positive $X

U.S. revenue reminder, losses was scale our was business from was in of is our EBITDA of we expenditures net EBITDA free million, million adjusted International the flow business for As cash was this outside consistent Adjusted of and cash this as $XX Non-GAAP $XX expected the based recent quarter fourth with we and quarter negative a million, capital $XX internationally $XX business. U.S. in seen consecutive operating million. the QX X.X% for in spending quarters of of the have quarter. profitability negative activities CapEx the on net which

resulting net be QX, revenue, expect X% CapEx a CapEx of net we approximately revenue. in approximately of For XXXX of total X% to

cash notes, long-term low found cost the This XX, notes to us environments, should opportunistic. Further on attractive and and can both September strengthened remain negative capital of cost net investments. the our macroeconomic the we with million be approximately convertible our capped in SEC balance transactions. of in positive fees further sheet funding IR filings and us site. of flexibility our on and million and give details $XXX enable $XXX convertible of equivalents, cash, This from amount the As had all short of issuance and September in approximately reflects call

XX% turn QX million of and of revenue above of dollar Within $XXX Retail in the quarter-to-date to to approximately range year-over-year XX% give to in previously, a We growth gross to $XXX $X,XXX rate International growth we million. of Now Retail Retail Direct growing XX%. expect XX% range XXXX. our $X,XXX million year-over-year. let done guidance year-over-year current Direct To transparency growth to growth approximately is Retail of to the me year-over-year XX% year-over-year Direct Retail as XX% that, representing XX% on trending, million, and for I've Direct U.S. Direct revenue forecast

fourth of we we in weighting a always, our million due forecast for be the are when the pleased $X,XXX revenue to strong has As quarter. QX particular the million set for quarter heavier half to are share to $XX We the revenue prudent market million Overall, points and to to we other back growth we guidance the holidays. guidance, with gaining. of another quarter of quarter and continue million, to net to $XX revenue be between total fourth $X,XXX for the

of we EBITDA, For negative QX XXXX. to for X% X.X% adjusted consolidated forecast margins negative

the expect million or adjusted business long bullish in to near term. remain business dollars and to deliver in plus $XX QX EBITDA We the minus similar both incredibly term to our International and be In adjusted EBITDA losses about QX, QX U.S. XXXX. we

quarter quarter KPIs of in $XXX to Direct consecutive in We customer marked adjusted fourth Retail growth QX year-over-year EBITDA Our continue million another and the be U.S. approximately profitability in the strong. of delivered dollar

Given of across plan advantage taking one-year of to the spend we continue and large our strength business we continued teams ahead, our up the the investing, payback buildout see including opportunity the the business. ad to target of and

$XX and average million of for modeling weighted $XX XX.X shares related approximately outstanding tax million, QX compensation $XX expense and to assume approximately million, million. $XX and XXXX, equity-based depreciation to amortization For of purposes please million of

we Now turn let take call Niraj me the to your before questions. over

Niraj Shah

extremely just Steve their I Michael. of how under is customer shop proud Thanks the and for Company home. headway making X,XXX of our are in people transforming

want public, put full billion. revenue months went represents our which XX. this revenue $X.X XX in Retail revenue growth QX, Direct Direct out ending I While in the Retail in of that context, the point XX% our of year September Retail billion it growth was into rate year-over-year was is in $X.X year Direct XXXX, that in only to To the just we

just grown later, business and years in we've our three than than a billion. rate less run by a shy $X more single Now, amount have revenue of of that reached year

category share your open convenient can online, and merchandising, believe fast now I'll can few by world-class outsized As of ask delivering service. the we we up best the operator home we delivery, dollars the taking vast visual selection, the answer to in customer move customer line questions. with to an and a experience continue With inspiring so that, keep

Operator

[Operator John Instructions] Blackledge first line now from comes line Your Cowen. open. of John, the your question from is

John Blackledge

Just a a XXXX rate here a callout difference The XX% we than couple QX questions. perhaps you in discuss was could at repeat levels. and the below of bit Any touch one expected, lower U.S. between rates component and have on critical then generally the of a And do guide. follow-up rate in repeat business? view as International, and I you of leverage EBITDA kind long-term the repeat

Michael Fleisher

are but to customers and right, in, new First many we combination of are a adding on a coming repeat customers repeat customer, also from how new good had everybody, out customers. remember orders from point many quarter on coming that metric, to because I it's obviously tried how

some well. good seasonality feel about that. to quite we So is also that There as

We are think the International, that but the business is is people a an rate other gain between better than International is as share. running on break U.S. repeat when customer. continuing International that metric at focus all-time is that think basically orders I all-time X.XX, And we it high. business U.S. And quarter. out and number, The as at that. And far business about X.XX. the the the U.S. high and to the they I that is would runs I that X.XX thinking looking really last well So, you the per was active know business it's pointed don't same out, repeat an below number at

Niraj Shah

Niraj. is John, this

repeat So a repeat of orders, the it's the number to rate, clarify, orders that is an derive would just the to where close you was not referring that orders share get frequency. and the are the rate of the indication Michael to which you then what XX% repeat is be customer, of per

John Blackledge

the think was a at EBITDA in Okay, it's details U.S. given you bit, the the the maybe on the U.S. I highest margin, last seasonality, callouts it's the to typically guidance EBITDA any guide, though give on given Michael's years little guide? great. of going further just margins decline or least perhaps And XQ could couple

Niraj Shah

Sure. Since it's guidance, answer. let me Michael let

Michael Fleisher

of us in always we So, than trying talked think think you think typical account that piece. quarter margin. that went behind take QX, In if gross us to of then John, in revenue I guide I I other you in that quarter, lot the and into so go there's more the last I as a we think And I into a front piece think QX particular, in with about back and couple from is, hear is going super-intense, fourth promotional always looked it's the going to environment anticipate quarter to very QX the you'd our less intense. the some going me that like We it's years hard the so. be been which In it's anticipate call last years in years, been into say look thing, to same holiday. of some it's what at

at not that way we it in can of in a our being time, we You still much own a to our want that for make will at hard go same remember that margin and sort period. then already, from ourselves room other product business model. very customers be sell and work right when promotional, gross so the and to leave right, perspective they've do it we they brought to inventory build gross that market priced, the to thing But our product business, sure we margin, folks that's discount are though the lower that have the

Operator

is next line Your from Piper Keith comes your from Jaffray. line of now Peter, Peter question open. the

Peter Keith

other dynamics perhaps detail third see recent quarter called hurricane on during companies guys any call. here the late on have the Thanks your for of impact August or would out the I you was did parts curious, in weeks, that all the in business September?

Niraj Shah

Sure, the have I Peter. we on so and events sales that any is time mean question like at look that, states forth. and so no impacted you there and

of the that's growing recent I dislocation market of see to trends. is online from shift said, there percent, business from when our couple obvious think want XX% to thing kind is thing about couple offline. overall only definitely biggest business, You a out, one happening percent, and do the few That you point total growing secular over a of the really the

that, or relative to So, X% is we're over XX%. total X%, growing than online and growing growing is the less growing market XX%, then XX% offline is

same we So, the of by then macro effects in secular do and large, a total little that are there see is and the definitely trends what see bit others those quantitative rebound, a impact freezing so is muted trends would but we But where those of effects up heavily because basis their see. is kind happens a to shift. there's us from

Peter Keith

item margin at thanks QX, line expense looking And you guys. midpoint. you EBITDA follow-up bit any there how looks in than your at one just quick the you then exceeded then, came Okay, guidance, a it heavier in that but like came thought? Was had sales guided the little

Michael Fleisher

we're the It's hiring. Michael. prepared as One mentioned my A hiring thoughts is, couple pace which about we in really good at there. and I of the remarks, feel

than very was quarter, so And about, to that more and I talked strong, that right, from so ad getting per because ad customer to the customer, every that continued per unit forward, XX be spending quite stepped of lean probably a customer, really which anticipated. orders note perspective economics I customer little in means would that trailing the we've this were continue month's up X.XX we're we headcount strong us I revenue point. be OpEx think also at I think $XXX active is that an adds a dollar that as spend active spend – dramatically the

I as pointed is our a complex I business on business task based of model. so think two, margin of plus sort last time, our the pinpoint the trying of nature And in out to gross those combination

XX of points super-fine And or so, movement of seems points basis detail. XX basis sort like

Peter Keith

Okay, holiday season. good good the enough, luck and with

Operator

of comes now Seth, question next Wedbush. the from Your your from open. Seth is Basham line line

Seth Basham

My picked They were leaning a question around you customer costs. is to in advertising. acquisition I have see up seem on bit.

in up that payback period. should acquisition at to elevated to growth be expecting drive one-year But rate? cost You're we this long how this investing to remain relatively point, customer

Niraj Shah

It's Niraj.

to the guess don't guess elevated. kind characterize try acquisition customer would help be fair it costs, it I know to that as I So to I of explain

repeat relative is what orders question earlier that orders. of basically about the we first in to think you the I that have mix XX%, talked new

One business impact something the mix total. take happening effective business portion obviously of with As mix an spend international and you see the method the the ago years that increasingly say, and that that it, the in domestic. increasingly you new calculation the we is is new, versus smaller of every are of hit – would if effects becomes business. for shifting mix ad as to And proxy there's of dollar two second a we new a the less repeat relative becomes you those to effects, gave different. isolate where The

the percentage efficient would runs larger As it very absolute in you're dollar when terms do which spend like not taking would customer the of in way new percentage those dollars ad changing that are for revenue, it's new zero necessarily seeing. you rising, a low are costs counting of basis fact larger are then on that's said, base that that amounts, hitting and with but taking and which those larger acquisition make what a which look in a base you're you unit dollar growing as at repeat you're revenue,

model let then proxy but a So, costs. what you I to at to start in say runs a acquisition assuming, going notion we percentage of low model I zero. like but closer this put to forward, at revenue ad about, that need to could talked it's repeat would to but a run for think is start or efficient I think as get very want model that customer is it how it, you you you revenue, way to which don't And one our cost it it don't

Seth Basham

That's helpful.

clear, the basis? in on So be to are year-over-year just not rising U.S., acquisition customer the a costs

Michael Fleisher

active customer becomes $XX. back per investor sort repeat, business why basically out, calculation that Seth, in are sort $XXX. time, from costs, gone time $XX at same that would to and revenue pointed remained there I at that have $XXX have calculation And Niraj of do of – over customer period out during that more run point just a has the those acquisition the between the of when deck, think of the the we that's I some challenges as the

Niraj Shah

is This Niraj.

different way in I guess, time efficiency, get the Just the the changed domestic it to to in say not ad so a business. the payback has

So, dangerous how even, period when I thing to or extending it not the at. think you numbers the of value if of about when covers have, and elongate allowing the what contribution margin think the breaks changed kind you are on you you ad that's cost long cohort till the gets has that, in off start want and key from actual – the cohort that, get been I cost, where the the extended, and you think that to ad we've is not

are numbers the terms then you as you. seeing we you math of number, given basically So explain the in that I doing, as to to give what the you to can how get understanding tried possible, well actual

Seth Basham

holidays. Fair enough. with Thank luck you guys and good

Operator

line Post comes of question from Merrill Lynch. the Justin next from Your

open. is line your Justin,

Justin Post

seeing especially you cost. at the I real On line, when U.S. side? a the in lot line on in leverage bottom You're on guess a point. customer seeing this guidance not of do start level, it questions acquisition high that

largest going up of in And feel unit seeing getting how competitor ads the ad are and about talk go listing basis then more second seeing on about and questions a costs lot a areas, product thing, when you're you out competition? you aggressive can there? you other you. So about Thank to so there leverage long-term start perhaps your

Niraj Shah

Sure, Justin. It's Niraj.

our So, is is, this I you're mean say seeing what in I'd what numbers.

a the terms that. advertising rate U.S. We brand you we've that do tells spoke to fact stronger, is the on that net built that to is us getting think getting lot see of efficiency ad we're gives ad very frankly in side. up, and share. cost not business tech, at stronger, and our of but at the is of see on XX%, growing of growing Direct own I a can unit and It experience online really like basically market You basis going our and growth, earlier, we've significant taking that due that got that advantage our Steve a the a is multiple

great the need rate effectively to to market spend like that have really efficiency So, I not XX%, try drop we if very the seeing instead and misconception, ad economics basically line, willing the in much think were of I cost the acquire thing a new to overnight we dramatically because just think about at could money. there's advertising customers wouldn't grow

acquire they little the than to in pay and and If in time to you productivity better foolish year going you get can any cohorts, to seems show past, are customers at it than they it's not if less want though are to us back the – going bit look to a customer. that a that's

overnight, taking all costs acquisition of the you you effectively going acquire not the have If And the referring revenue to magically to expect that take work. to the course shown then cost up it's you're current have cohorts the are to you then revenue new the where discounting where are that's for you customer analysis paid then the the back and and to should new rate, it paying are return you overnight, on saying, you showing is or which which these that back the monetization customers, the and gave effectively we you're cohorts growth shows curve. leverage, the is period

to high-return the the repeat about it payback for So, if segment have way the ad for on of think for you can the is on period the cost sort new, new, ad cost understand effectively you economics ad cost paying had great of you've effectively the from about stronger revenue on for think the than basis before, new it. in same we and timeframe, customer that's ever cohort way very acquisition, a sort stronger investment. productivity That's curve, back a repeat

sort two, delevers that the the right. And U.S. of number International ad cost, so, percentage,

this – percentage, negative U.S. be have is a say had a you if would was is to total So flat in when taking you International at has contributor where flat obviously and a U.S. case share. if look the is the International it contributor, the total year-over-year, beneficiary,

I be to which extend what about make what for making to it a and manage for. We to want just customers manage actually but ago, does ambitious we be is in said want sure it show getting honest, customers the want So very we value about but payback minute just want really quantitative period. the high that's U.S. to We we that. are that we to leverage, sure be don't not

that's way the it. think about So kind of we

The specific had second are challenges they to at they I you have. they I someone would who Amazon, you was still what same always physical I wants obviously And driven who home, goods all mean had e-commerce. are to. The question there, assuming that alluding say I'm that's think have

built our I all logistics capability items, So, customer gain the operations, service, look strength large are delivery to advantages in speak heavy selection, distribution the significant merchandising, think we've to continues brand our in-home our bulky, these for home. these if at you and why

same seeing and be So, player us price mean look gain I share where to the if that commodity you Target where opening and you the continuing continue that's on are think don't huge of through a point think I away play, you but their mid, to Walmart But they there. the side, off expect volume the go all to way pages move them items, is, into price their I going I to traction. very bottom as again, are and

Operator

line line is Your question next Brian comes open. Oppenheimer. your Brian, of from from the Nagel

Brian Nagel

control is your there QX, that, we in to in and that business? what bump been other first growth if – strengthening you as any that so is and probably at reflective said, to of say we are the that explain, the few question growth had decisions you extent, so moderation a recognizing in under simply quarters a place making or bit but look trajectory The have, the in QX for at moderating the but that out can QX takeaway has back revenue the and building better than as is Wayfair QX I somewhat, choppy trajectory last significantly with slight to why there, some

Niraj Shah

I think the we think to way outcome. we is long about term the about care care about what

lot Direct $XXX business and look key the But to did And I like period is dollar sort at will back say, quarterly the results at sense how at the about a it slipped did we we of but don't those as time a it per period different lot initiatives, it and as or believed of think see a we are the manage that execution trying of all once frankly, of created was that where and lot where in we se. talked after if a hiring wanted. come we're we and was seeing we had quarterly down, our slip pay when and dollar So a had down. growth, you growth, we really number million, what that year look a you'll off, not think up a percentages half tight I it's to necessarily the ago

you're we we which What for if tell you the see good is frankly, we're if I has number, all-time and naturally of a strong, whole change we It Now of, on you think growing year-over-year it's bit growth a if are job, basically advantage get we've you But market it and a a that number. to saying that us time. year-over-year what taker, way, look scale at an you dollar headcount should execution rapid exactly little in wiser like over X%, a grow, don't I X% mature helped well the this we is is a caliber, at the mature not it share a in that talent how hired of this growth the what's are learn tighter linear at then happened, and period kind the year we would works to and incredibly same depending think some track, high. with quarter do gets dollar when ago you're have. and what that continue now but look is happened and taking to market growing at in that gives you fine

dollar whether with being to protecting eyes to try growth. and came And are dollar this dollars that's to play really and economics that's sort we we working the where point turning the kind really making the derivatives investments of that These see inherent of growth. the unit for of the are customer the while share are we and effective that in the the profitability try of So what of and we that excited succeeding well. online is to what we are out

Brian Nagel

That's just offering. really make shift as signal deal type into capital of recent level? helpful. then my that to there it at business, or a we you I to the with does going And brought that [indiscernible] the question, the that at some cushion it follow-up is, Michael, simply The you. Thank talked about look a maybe is this question convert have some as you're on

Michael Fleisher

latter, I Brian. think the it's

taking should advantage I think clear very tried this of that really some be attractive read be and not doing market raising a as strong anyone to we anything convert low-cost really but financing. us by

Brian Nagel

you. it. Thank Got

Operator

Your line from line the your Aaron next comes question is open. Kessler James. of Aaron, from now Raymond

Aaron Kessler

If performing geographic businesses, I sorry expectations? you. as of you versus if Thank country, such performance kind And missed can just that's that. they how maybe can by an update then provide us just just maybe are some of newer wedding I'm on the if tracking, the how registry? you

Niraj Shah

sort year. first This is on registry, Yes, didn't we That its wedding of Niraj. finished just that. touch

a spring-summer had they good coming rolling out registry first coming are to their an second of are getting how there's we're this customers the season. cycle We year for for plans fall So through annual the are and the The engaged, setting into there, now. winter, couples up for kind year. acquire wedding

really So are we there. that's ago. we it It's has what think little cycle annual it, talked with longer that take are early happy days sort seeing but something I build quarter of that about to to Paragould a terms will a because really We we're we – we've spectacular had finished talked we've times about nice in the we different which a seeing different of decorative really about but outdoor talked we've season. accents, there. talked mattresses, about Talking about categories season traction at just

our are strength. like will steam. different continue And which credit some in, programs but up, little lot gain older a areas financing relatively a gain in we soon, some in that that card out to kind we've not we data of which So, to on private-label a of we've continue while are continues got but other of to investing again really but building given new in have sometime are of which terms – of

lot you're creating the very business seeing of we're for a of lot sort really of a excited is what got interplay the is nicely of which things we've building So, about, value of customers. different and and all

segment on because it in In U.S. the question supply U.K., different maturity. performance, ramped terms U.S. of and at it the gotten and U.S. other geographic and selection, good continues a International are stages Canada, nice write we and have the countries of gets of chain, effectively at clip. and your it's to three the grow quickly, it's start Canada, very up very Germany, very the a U.S. infrastructure, to off merchandise to they

is is on in we Canada first The grown So, Europe, the the focused most had mature. which U.K., market very nicely. really

a that country become leader organically in quarters a of We we've a how to and taken are able momentum, where where get and we now scaling. talked state kind there things. CastleGate a very and we scale growing we in that's some do now opened building that's a from and So while to about back few have it's facility that to nicely

very so then of maturity. maturity. the a early of level in is at And of sort level that's And sort medium Germany

feel we've selection, and the then predecessor all the built the up where are to Continental We've in really understands getting the base. Europe the market customer up to and offering ramp been a like merchandising, there building that well. can So market team these activities we we really

when of segment. add Germany of their And that the International effectively so kind all you that least them up gives is together, mature. And numbers take sort you and

Aaron Kessler

Thanks great. update. for it, Got the

Operator

line of final question line comes from your Our the now May open. is Mark from Citi. Mark,

Mark May

shifts terms of revenue and have you've we there, aspects Wayfair as I'm I of that thought CastleGate, growing, of there of at more kind you number XX% of elements kind sure brands, earlier the does the opportunity are service in the inventory, said a in the a more One remind are of, that the just that kind and impacts core of are controlling levels I any the shows P&L? some in-house distribution you of those two-part think in sub-question but those Thanks. of of trying business to is, days the some of kind can in the and the question. towards the impact business built understand for of of business? your CastleGate of second And where then as generating more and the lines customers, more is, you elements terms meaningful along CastleGate how of out that the shift network and up us in revenue,

Niraj Shah

tackle one the me first the I can then accounting, Let then CastleGate and and on second some the comment share on for one. can thoughts Michael

but are the operate or So, up the it's the majority you less business. the relevant majority right, Wayfair.com, what for in appliances, one, the are that's doing it's we on brands vast certain are categories. non-branded of of first where so the And are brands way in large and there of to like categories so beauty we the are there we of said obviously house plumbing things XX% us, vast,

these from we they impacts customers and things really not base, up as of have how business And so, thousands do so great curating the our of operates. we're it, But different it house the into brands, because of these help navigation, providing that effectively and because them shop. come negative methods of on brands, a the we've building result, products imagery, visual had success does nature actually way our that supplier

they Suppliers line, to ability do just to these CastleGate. or in are have when words, has channel others other to really our choices distribution they they that use in online give risk. us items further inventory bringing do are they other in market, still limited really some of to in also, give and item in and on have items but who which where don't stores them because this may suppliers still inventory. leaning drive not we increasingly lean who momentum, in incents distribution making are to these are them excited gives items to, These some are us places, knowing not while degrees of carry their the them So, we the gain are their we they

does someone that when or an really is accelerant warehouse going sell, CastleGate higher. want goods a there a or in item and this speculative So for actually meant rate where is park certain can to works [indiscernible], to others cost delivery, delivery hybrid that's the a really don't to that, do well. minimum own the that lot of just are to which the CastleGate to and as case, a of distribution not just an cost to has to intersection well certain of you you last have multiple sale need not you very so the you up focus is they is CastleGate be think have because that's they induct for infrastructure that set set lowest service going CastleGate well effective mile sense very on goods lowest of rate why is if sale, fast – may may the rather into that have need of you for your to networks have have, or have warehouses, the than have own, distribution about of your who

So you would business learned to is well reinforces doesn't model ago. point, brands time it house it. incredibly that loyalty what say that It finish regards up working a I change really customer first the building the and long just is about with the to

question, you…? second the On Michael, can

Michael Fleisher

shows is contract up strategically in Mark, It it P&L, some and the shows to up places. providing supplier accounting, But no to place right it a in whose of very to it up, inconsequential meaningful COGS, up the impact on obviously just on revenue recognition CastleGate the do the in is just understand and though little revenue then customer. service shows are is of share, it because and sort two we're in the accounting, revenue product a selling P&L. shows the we the has other bit The important a obviously gaining

Mark May

Okay, thanks.

Niraj Shah

a expansion rate And and see we because that feeling sort have going able been season. really how a rate which see the in rent that not you that facilities network, because to opened of see nicely appreciate you of to And on ramp. absorb quite CastleGate, can the thanks all that's say gives We holiday have for has we're footprint utilization the and I'll continue the of you calling the it's the it's that ramping the to Anyways, and we been for a at can interest about grown, huge in. your everyone, you ramping just network. good think and can excited out we've annualized really of it's built growth

Operator

today's call. concludes conference That

may You now disconnect.

Wayfair (W) 2 Nov 172017 Q3 Earnings call transcript