Wayfair Inc (W 1.71%) shares closed down nearly 6 percent Friday after D.A. Davidson issued a bearish report expressing concern indicates over Overstock.com Inc's (OSTK 6.2%) comments that the online retailer would increase spending to take more market share in the home furnishing space.
Analyst Tom Forte downgraded Wayfair from Neutral to Underperform and maintained a price target of $65.
Wayfair’s plans to significantly increase advertising are likely a reaction to increased competition with Overstock.com Inc, Forte said in a Friday note. (See the analyst's track record here.)
“While we acknowledge that Overstock’s management has gone out of its way in the past to discredit Wayfair’s business model — investment spending to drive customer acquisition and market share — we believe increased competition for the online home category could have an ever greater negative impact on Wayfair's operating results" than initially suggested by the company's guidance, Forte said.
D.A. Davidson's downgrade does not solely come due to increased competition, but also because shares have "reinflated" after falling moret than 22 percent after Wayfair's Q4 earnings miss, the analyst said. If shares fall significantly on the Overstock news, Forte said he'd be open to adjusting the rating.
A path exists for both Wayfair and Overstock to grow in tandem, he said.
“Should Wayfair and Overstock take share from traditional brick and mortar retailers in the home category as more offline dollars move online, Overstock’s new business strategy may not materially affect Wayfair."
Wayfair shares were down 5.97 percent at $78.95 at the close Friday.
Brett Hershman , Benzinga
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