Wayfair Inc. (W) delivered a solid earnings beat Thursday, but investors weren't in a celebratory mood. The online furniture retailer's shares tumbled as Wall Street fixated on a worrying trend: the company is slowly bleeding customers.

The Numbers Tell Two Stories

Wayfair's fourth-quarter results looked impressive on the surface. Adjusted earnings came in at 85 cents per share, crushing the analyst consensus of 66 cents. Revenue climbed 6.9% year over year to $3.337 billion, topping expectations of $3.301 billion.

But here's the problem: active customers totaled 21.3 million as of December 31, 2025, down 0.5% from the prior year. That might sound small, but in growth-oriented retail, customer acquisition is everything. Losing customers while growing revenue means you're just squeezing more from the people who stuck around.

The regional breakdown showed similar patterns. U.S. net revenue reached $2.9 billion, up 7.4% year over year, while international sales hit $395 million, rising 3.7% (or 1.3% in constant currency). Excluding the company's exit from the German market, total revenue growth was actually 7.8%.

Average order value increased to $301 from $290 in the year-ago quarter, which helps explain how revenue grew despite fewer customers. Repeat customers accounted for 79.1% of orders, compared to 79.4% last year.

On the profitability front, things looked better. Gross profit jumped to $1.010 billion from $941 million, while adjusted EBITDA more than doubled to $224 million from $96 million.

CEO Niraj Shah tried to put a positive spin on things: "We had our third consecutive quarter of new customer growth, on top of healthy growth in repeat orders, all in the face of a category that contracted in the low single digits for the final quarter of the year."

The company ended the quarter with $1.476 billion in cash and equivalents.

What's Next

Wayfair expects mid-single-digit revenue growth in the first quarter of 2026, with gross margins projected between 30% and 31%, likely trending toward the lower end. Adjusted EBITDA should land between 4.5% and 5.5% of net revenue.

Short Sellers Circle

Making matters more interesting, Wayfair remains a favorite target for short sellers. The stock has a short float of 16.69 million shares, representing 21.44% of publicly traded shares. That's a substantial bet against the company, and Thursday's 10.66% drop to $81.72 likely had those shorts feeling vindicated.