Strengthened Sales in Focus: Wayfair Benefits from Signs of a Housing Boom

December is traditionally the month for investors to focus more on stocks or sectors that have performed poorly over the past year but offer potential for recovery in the coming year. The real estate market is currently showing initial positive signals: According to the National Association of Realtors, pending home sales rose by 2 percent in October compared to the previous month – and this for the third consecutive time. A recovery in the real estate market would particularly benefit the e-commerce giant for household goods, Wayfair. Wayfair's shares have lost nearly 85 percent of their value since their peak in 2021. The company recorded double-digit revenue growth every year until 2020, when consumer confidence was hit by the pandemic. Rising interest rates and inflation continued to strain the housing market and consumer behavior in 2022, leading to a decline in sales. The current interest rate cuts by the Federal Reserve give a boost to hopes for stability. The central bank lowered its key interest rate by 50 basis points in September and by another 25 basis points in November. Further cuts are widely expected to be decided at the upcoming Federal Open Market Committee meeting. Moderate interest rates could positively impact consumer levels next year and stimulate consumption. Wayfair is responding to the current purchasing restraint of its customers with a strategic focus: Although sales in the third quarter fell by 2 percent year-over-year, the figures are stabilizing at a level significantly above that of 2019. The company's peak sales in the second quarter of 2020 were $4.3 billion and have recently flattened to around $2.8 billion. This stability allows the management to undertake a more focused profitability strategy. The number of active users remains impressive: Of the 21 million active customers, around ten million are frequent buyers who have placed at least four orders in the past twelve months. CEO Niraj Shah sees great potential for growth here, as customers in this segment typically make six to eight purchases per year. Developments in the housing market could pave the way for Wayfair's return to growth and put the company in a stronger position. The recent recovery in free cash flow, which rose back above the zero line to $43 million after dropping to negative $1.1 billion in the fourth quarter of 2023, is also a positive signal for the future.