• by Sarah Mahoney  @mahoney_sarah, February 25, 2019

Wayfair continues to post blistering sales gains, thanks to heavier marketing spending. But losses are growing fast, too, and experts have doubts about how the hot ecommerce company can keep up its “more advertising, fewer profits” game.

For the fourth quarter, the Boston-based company says revenue zoomed to nearly $2 billion, a 40.6% jump from the prior year. But its losses nearly doubled to $143.8 million, up from a loss of $72.7 million in the comparable period a year ago.

Those losses are mounting as Wayfair “spends heavily on advertising, people and logistics,” writes Seth Basham, an analyst who follows the company for Wedbush Securities, in his comment on the latest numbers. In other words, Wayfair is “'buying' revenue growth through more aggressive spending growth.”

Basham says he's particularly concerned about the cost of acquiring new customers, and Wayfair’s guidance that it will spend record levels on ads in the current quarter, with a percentage increase in spending “in the mid- to high teens.”

And Morningstar analyst Jaime M. Katz estimates Wayfair ratcheted up its direct advertising spending by 42% in the quarter, with customer acquisition costs rising 10%.

Wayfair is confident in its conviction that as long as it keeps adding new customers, keeping them happy and refining its logistics networks, profits will come.

“We remain focused on our long-term approach to investing in the business, and believe the Company’s outsized growth at scale is a testament to the strength of our brand and platform as we redefine the shopping experience in our category,” CEO and co-founder Niraj Shah says in its announcement.

In a presentation for the investment community, Wayfair execs said online spending in the home category is climbing 15% a year in the U.S., and that the company is working to overcome the category’s biggest barriers to online shopping, including the confidence to buy, visualizing products, inspiration and product discovery, and customer service and delivery.

It says it is continuing to overcome those hurdles, with everything from customer reviews, AR shopping technology, idea boards and expanded support throughout the shopping and delivery process. It’s also increasing its use of direct mail, paid digital and online integrations.

Wayfair says the number of its active customers rose to 15.2 million, up 37.9% from last year. And repeat customers accounted for 66.4% of the fourth quarter’s order, up from 62.3% in the same period of the prior year, with the number of orders from repeat customers increasing 51.1% on a year-over-year basis. Those measures indicate that existing customers are happy with Wayfair.

And Basham, who remains neutral on Wayfair, writes that the reduction in customer churn is a positive.

“Revenue from repeat customers is rising steadily, but the stickiness of this customer base will be proved over time as housing turnover slows, taking with it initial home purchase transactions,” writes Katz. “While we understand that spending to capture incremental share is imperative, management noted that Wayfair remains in the early innings of building out its logistics network, implying that inflated spending and inefficiencies could weigh on profits for longer than anticipated.”