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Biggest 1Q issues/risks: ¢ Commentary on US customer trends, particularly repeat rates and unit economics (customer acquisition costs). « AOV trends given street concerns that some customer metrics are benefitting from purchase of lower value items. ¢ Progress with International investments, especially early results from ad spending in UK, Canada, and Germany. 1Q data points indicate mixed traffic trends US data indicates that Wayfair PC minutes growth increased 17% y/y in 1Q through February vs. 14% y/y growth in 4Q’16. Wayfair mobile minutes have decreased 24% y/y through February in 1Q vs. up 3% y/y in 4Q’16. US PC user growth decreased 16% y/y in 1Q through February, vs. 4Q at -25% y/y. Wayfair mobile user growth increased 2% y/y in 1Q through February vs. 16% y/y in 4Q. Estimates vs. Consensus: Expect revenue and EPS upside vs. the Street For 1Q, we expect revenue/EBITDA of $944mn/($22mn) vs. the Street at $933mn/($32mn). Total revenue guidance of $905-930mn implies 2-year stacked growth of 97-101% vs. 121% in 2016, which seems conservative. We expect the company’s revenue to come in above the high end of the sales outlook as Direct Revenue sales were up 30% quarter to date (through nearly 2 months of 1Q’17). Our 1Q revenue growth forecast is based on 48% y/y customer growth (up 9% q/q) and 42% order growth (down 10% q/q}. Wayfair expects EBITDA margin of (3.5%)-(3.8%} due to a lower opex absorption in the quarter on seasonally lower sales. The company continues to expect little to no ad spend leverage given increase International ad spend. Table 28: Wayfair Estimate Summary 1Q17 2017 2017 2018 2019 Revenue BofAML est. $944 $980 $4,169 $5,019 $5,872 Growth Y/Y% 26% 25% 23% 20% 17% Street $933 $987 $4,237 $5,258 $6,585 BofAML vs. Street Above Below Below Below Below EBITDA BofAML est. -$22 -$19 -$48 $10 $64 Street -$32 -$20 -$59 $23 $134 BofAML vs. Street Above Above Above Below Below EPS BofAML est. ($0.49) ($0.46) ($1.55) ($1.00) ($0.47) Street ($0.60) ($0.45) ($1.65) ($0.94) $0.04 BofAML vs. Street Above Below Above Below Below Source: BofA Merrill Lynch Global Research estimates, Bloomberg, as of 4/4/2017 Our PO of $44 is based on 0.7x 2018E EV/sales. We continue to focus on EV/Sales given Wayfair’s lack of profitability due to US fulfilment investment and Intl. expansion. Our 0.7x target multiple is a discount to Wayfair’s eCommerce comp group at 1.3x and at a modest discount to a retail peer comp group at 0.8x. We think the multiple is appropriate given strong revenue growth vs. peers, balanced by lower profitability. 42 Internet/e-Commerce | 06 April 2017 Bankof America <2 Merrill Lynch HOUSE_OVERSIGHT_014928