[OKTA, W] back to reality

A stock provokes different reactions depending on how much it is down. When the stock of a once-lauded company sells off by 30%-40%, some investors see an attractive buying opportunity. But when it draws down 70%+, they no longer see a broken stock; they assume a broken company. Stock price drives narrative and I’m wondering which names, beaten down and reviled today, might be looked back upon in 10 years as generational buying opportunities. I’ve been spending some time sifting through the remnants of COVID high flyers whose stocks have cracked 80%-90%+ from their highs. Many, of course, really are broken companies with dubious terminal values (Opendoor? Lemonade?) but surely a handful will prove to be durable enterprises that reward those willing to look past today’s obsession with macro and cash flow and instead take a longer-term view.

Wayfair

I.

So yea, Wayfair. Of all the companies I’ve spoken to others about over the last few months, Wayfair provokes the most doubt and disgust, a totally understandable reflex to a stock that has lost 90% of its value over the last year. The objections? You’ve heard it all by now. This is a COVID darling that pulled forward years of demand for episodic consumer durables. Outside the COVID-juiced demand of 2020 and 2021, the company has never generated EBITDA profits. Amazon, inflation, recession, etc. Hating this stock is an easy call.

To put things in historical perspective, Wayfair’s stock is not just down from 2018/2019, but from its first day of trading on October 2, 2014. Wayfair’s enterprise value has grown by 50% over that time, but has been far outpaced by progress in Wayfair’s KPIs and gross profits:

Reasonable minds can differ over whether Wayfair is protected by a sustainable moat, but it’s hard to argue that this isn’t a far more substantive company today than it was back then. I mean, they had only just rolled out a mobile app in 2014! In the intervening years, they’ve augmented the app with AR visualizations, hardened a bunch of data science capabilities for customer acquisition and product recommendations, and perhaps most importantly, built a substantial dedicated logistics footprint.