Unpacking why Wayfair’s stock popped 23.7% today

In the midst of the day’s news chaos both political and business-oriented, you might have missed Wayfair’s big moment: In regular trading today, shares of the online home goods retailer shot 23% higher. It was an eye-catching gain during a period when the domestic economy is troubled, unemployment is rising and consumer spending is slowing.

Why did Wayfair shares rise so much in a single day? In a word, earnings. But there’s a bit more nuance to understand, so let’s talk about the company’s Q1 earnings report and what it can tell us about consumer spending trends in the COVID-19 era, because they just might impact a startup or two.

Q1 results

We’ll start with the basics: Wayfair reported Q1 revenue of $2.33 billion, up 19.8% from $1.94 billion in the year-ago quarter. The company’s gross profit rose a sharper 23.1% to $579.1 million, boosting Wayfair’s gross margins in the first quarter of this year.

The rest of Wayfair’s income statement is less attractive. The company’s operating costs, including customer service, merchant fees, advertising and a bucket of costs it calls “selling, operations, technology, general and administrative,” came to $841.2 million. That figure is far larger than reported gross profit, meaning that Wayfair’s losses for the period were large.

The company’s operating loss in Q1 2020 rose to $284.5 million (+42.4%), and its net loss totaled a slightly worse $285.9 million. Its operating cash burn also rose sharply — over 215% — to $256.3 million in the period. Wayfair closed Q1 with more than $624 million in cash, meaning that it was still well-capitalized at the end of the period.

Why did shares of Wayfair rise when its losses popped as much as they did? The expectations game, essentially.