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As filed with the Securities and Exchange Commission on August 15, 2014.

Registration No. 333-         


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



WAYFAIR INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  5961
(Primary Standard Industrial
Classification Code Number)
  00-0000000
(I.R.S. Employer
Identification No.)

4 Copley Place, 7th Floor
Boston, MA 02116
(617) 532-6100

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)



Niraj Shah
Chief Executive Officer
Wayfair Inc.
4 Copley Place, 7th Floor
Boston, MA 02116
(617) 532-6100

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

John H. Chory, Esq.
Susan L. Mazur, Esq.
Latham & Watkins LLP
1000 Winter Street, Suite 3700
Waltham, MA 02451
Telephone: (781) 434-6700
Facsimile: (781) 434-6601

 

Michael Fleisher
Chief Financial Officer
Wayfair Inc.
4 Copley Place,
7th Floor
Boston, MA 02116
Telephone: (617) 532-6100
Facsimile: (617) 532-6148

 

Julie H. Jones, Esq.
Thomas Holden, Esq.
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199
Telephone: (617) 951-7000
Facsimile: (617) 951-7050



Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared effective.

              If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

              If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

              If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

              If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

              Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer þ
(Do not check if a
smaller reporting company)
  Smaller reporting company o

CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
To Be Registered

  Proposed Maximum
Aggregate Offering
Price(1)

  Amount of
Registration Fee(2)

 

Class A Common Stock, $0.001 par value per share

  $350,000,000   $45,080

 

(1)
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2)
Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.

              The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated August 15, 2014.

Preliminary Prospectus

                          Shares

LOGO

Class A Common Stock

            This is an initial public offering of shares of Class A common stock of Wayfair Inc.

            Wayfair is offering                  shares of Class A common stock to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional                   shares of Class A common stock. Wayfair will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

            Wayfair has two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately       % of the voting power of our outstanding capital stock immediately following the completion of this offering.

            Prior to this offering, there has been no public market for the Class A common stock. It is currently estimated that the initial public offering price will be between $       and $       per share. We have applied to list our Class A common stock on the New York Stock Exchange under the symbol "W."

            We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012, and, as such, have elected to comply with certain reduced public company reporting requirements. Investing in our common stock involves risks.

            See "Risk Factors" beginning on page 14 to read about factors you should consider before buying shares of the Class A common stock.

   
Per Share
   
Total
 

Initial public offering price

  $     $    

Underwriting discount

  $     $    

Proceeds, before expenses, to Wayfair

  $     $    

Proceeds, before expenses, to the selling stockholders

  $     $    

            To the extent that the underwriters sell more than                  shares of Class A common stock, the underwriters have the option to purchase up to an additional                   shares from Wayfair and the selling stockholders at the initial public offering price less the underwriting discount.

            Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

            The underwriters expect to deliver the shares against payment in New York, New York on                      , 2014.

Goldman, Sachs & Co.   BofA Merrill Lynch   Citigroup

 

 

Allen & Company LLC

 

 

Pacific Crest Securities

 

Piper Jaffray

 

Wells Fargo Securities
Canaccord Genuity   Cowen and Company   Raymond James



Prospectus dated             , 2014.

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Page
 

Prospectus Summary

    1  

Risk Factors

    14  

Special Note Regarding Forward-Looking Statements

    42  

Organizational Structure

    43  

Use of Proceeds

    46  

Dividend Policy

    46  

Capitalization

    47  

Dilution

    49  

Selected Consolidated Financial Data

    51  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    53  

Business

    77  

Management

    97  

Executive Compensation

    104  

Certain Relationships and Related Party Transactions

    112  

Principal and Selling Stockholders

    117  

Description of Capital Stock

    120  

Shares Eligible for Future Sale

    125  

Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of Class A Common Stock

    128  

Underwriting

    133  

Legal Matters

    140  

Experts

    140  

Where You Can Find More Information

    140  

Index to Consolidated Financial Statements

    F-1  

          Through and including                  , 2014 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

          We, the selling stockholders and the underwriters, have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.


Trademarks, Trade Names and Design Marks

          We use various trademarks, trade names and design marks in our business, including without limitation Wayfair®, Joss & Main®, AllModern®, DwellStudio® and Birch Lane™. This prospectus also contains trademarks and trade names of other businesses that are the property of their respective holders.


Market, Industry and Other Data

          We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry publications and research, surveys

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and studies conducted by third parties and other publicly available information. Industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe our internal company research is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source.

          Research by Euromonitor International should not be considered as the opinion of Euromonitor International as to the value of any security or the advisability of investing in Wayfair and accordingly, such information should not be relied upon for making any investment decision in respect of Wayfair.

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PROSPECTUS SUMMARY

          This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. Before deciding to invest in shares of our Class A common stock, you should read this summary together with the more detailed information elsewhere in this prospectus, including our consolidated financial statements and the related notes. You should carefully consider, among other things, the matters discussed in "Risk Factors," "Special Note Regarding Forward-Looking Statements," our consolidated financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each case included elsewhere in this prospectus.

          Unless the context otherwise requires, references in this prospectus to "Wayfair," "the company," "we," "us," and "our" refer, prior to the Corporate Reorganization discussed below, to Wayfair LLC, and, after the Corporate Reorganization discussed below, to Wayfair Inc., in each case together with its consolidated subsidiaries as a combined entity.


Wayfair Inc.

Overview

          Wayfair is transforming the way people shop for their homes. Our homes are the center of our lives, where we raise families, create our fondest memories and spend most of our time. Our homes are very personal expressions of self and identity, which is why many of us seek uniqueness, crave originality and enjoy the feeling created by home design, furniture and décor. We built Wayfair to meet this emotional need for mass market consumers.

          We have created one of the world's largest online destinations for the home. Through our e-commerce business model, we offer visually inspiring browsing, compelling merchandising, easy product discovery and attractive prices for over seven million products from over 7,000 suppliers across five distinct brands:

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          Our typical Wayfair customer is a 35 to 65 year old woman with an annual household income of $60,000 to $175,000, who we consider to be a mass market consumer and who we believe is underserved by traditional brick and mortar and other online retailers of home goods. Because each of our customers has a different taste, style, purchasing goal and budget when shopping for her home, we have built one of the largest online selections of furniture, home furnishings, décor and goods. We are able to offer this vast selection of products while holding minimal inventory because we typically ship products directly from our suppliers to our customers. This supplier direct fulfillment network is a key component of our custom-built and seamlessly integrated technology and operational platform, which also includes extensive supplier integrations, a proprietary transportation delivery network and superior customer service.

          We founded our company in May 2002 and have since delivered over 11.8 million orders. From 2002 through 2011, the company was bootstrapped by our co-founders and operated as hundreds of niche websites, such as bedroomfurniture.com and allbarstools.com. In 2006, we launched AllModern. From 2003 to 2011, we grew our net revenue organically from $7.7 million to $517.3 million, representing a 69.2% compound annual growth rate, or CAGR. In late 2011, we made the strategic decision to close and permanently redirect over 240 of our niche websites into Wayfair.com to create a one-stop shop for furniture, home furnishings, décor and goods and to build brand awareness, drive customer loyalty and increase repeat purchasing. We also changed our name from CSN Stores LLC to Wayfair LLC.

          Our co-founders are lifetime tech innovators who have worked together in the consumer internet sector since 1995 and have created a company culture deeply rooted in technology. Our technology and data focus facilitates critical e-commerce capabilities such as tailored shopping experiences across our five brands, consumer targeting and personalization, and "anytime, anywhere" shopping across our websites, mobile-optimized websites and mobile applications, which we collectively refer to as our sites.

          Our strong customer loyalty and deep supplier relationships have helped us grow our Direct Retail sales, which we define as sales generated primarily through the sites of our five brands. In 2013 and the six months ended June 30, 2014, we generated Direct Retail net revenue of $673.4 million and $469.5 million, respectively, an increase of 73.0% and 75.0%, respectively, over our Direct Retail net revenue of $389.3 million and $268.4 million in 2012 and the six months ended June 30, 2013, respectively. In 2013, we delivered 3.3 million orders for 2.1 million Direct Retail active customers, representing increases of 85.2% and 61.0%, respectively, over 2012. In the six months ended June 30, 2014, we delivered 2.2 million orders, representing an increase of 76.6%, over the six months ended June 30, 2013. In the six months ended June 30, 2014, we had 2.6 million Direct Retail active customers, representing an increase of 75.0% over the six months ended June 30, 2013. In 2013 and the six months ended June 30, 2014, LTM net revenue per active customer was $322 and $332, respectively, an increase of 7.3% and 6.1% over 2012 and the six months ended June 30, 2013, respectively. In 2013 and the six months ended June 30, 2014, 47.2% and 51.2%, respectively, of orders delivered were from repeat customers, up from 37.4% and 47.7% in 2012 and the six months ended June 30, 2013, respectively. In addition, our mobile platform drives growth by engaging customers where and when they want to shop; in the first six months of 2014, 27.9% of all Direct Retail orders delivered were placed from a mobile device, up from 21.3% in the first six months of 2013. See the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Financial and Operating Metrics" on page 55 for further detail.

          In 2013 and the six months ended June 30, 2014, we generated net revenue of $915.8 million and $574.1 million, respectively, up 52.4% and 49.8% over 2012 and the six months ended June 30, 2013, respectively. Our 2013 and six months ended June 30, 2014 net revenue included $673.4 million and $469.5 million, respectively, from Direct Retail and $242.4 million and $104.6 million, respectively,

 

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from Other, which we define as net revenue generated primarily online through third parties, which we refer to as our retail partners. In 2013, we generated a net loss of $15.5 million and Adjusted EBITDA of $(2.9) million, improvements of $5.5 million and $9.1 million, respectively, over 2012. In the six months ended June 30, 2014, we generated a net loss of $51.4 million and Adjusted EBITDA of $(37.0) million, increases of $43.1 million and $34.9 million, respectively, over the six months ended June 30, 2013. Our net loss and Adjusted EBITDA results were driven primarily by our increased investment in advertising in 2012, 2013 and the six months ended June 30, 2014. Because we hold minimal inventory and a majority of our customers pay us before we pay our suppliers, we have an attractive net working capital dynamic which typically allows us to generate more cash than our Adjusted EBITDA on an annual basis. See the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures" on page 55 for more information and for a reconciliation of Adjusted EBITDA.

Our Industry

          The home goods market is large and characterized by specific consumer trends, structural challenges and market dynamics that are shaping the future of our industry.

    Addressable Market Size and Growth

          Large and Growing Home Goods Market with Significant Online Potential:    The home goods market is large, global and growing. Our addressable home goods market, which we define as the U.S. furniture and home décor markets, was $233 billion in 2013, according to Euromonitor International, Ltd., a market research firm. It also expects the U.S. home goods market to grow at a 2.5% CAGR in real terms from 2013 to 2023, reaching $297 billion in 2023. We believe the online penetration of the U.S. home goods market in 2013 was approximately 7%, significantly lower than other retail markets.

          Mass Market for Home Goods is Large and Underserved:    We believe the mass market for home goods represents the largest addressable opportunity within the home goods sector and that the mass market consumer is underserved due to structural limitations of brick and mortar and other online retailers.

          Women Control an Outsized Share of Spending within the Household:    In 2013, women represented 70% of our customers. According to a report released by the U.S. Census Bureau in 2013, there are 158 million women in the United States, of which 63 million are between the ages of 35 and 65. We believe these women control an outsized share of spending, particularly spending related to furniture, home furnishings, décor and goods.

          Beneficial Effects of the Millennial Generation Aging and Maturing into the Home Category:    We believe there are approximately 73 million millennials (which we define as individuals currently between the ages of 18 to 31) in the United States, many of whom are accustomed to purchasing goods online. As millennials age, start new families and move into new homes, we expect online sales of home goods to increase. In addition, we believe the online home goods market will further grow as older generations of consumers become increasingly comfortable purchasing online.

          Mobile Commerce is Growing Rapidly and Only Just Beginning in Home Goods:    The proliferation of smartphones and tablets has made mobile commerce one of the fastest growing online channels. Since consumers have access to their mobile devices virtually anytime and anywhere, they have the opportunity to browse, discover and shop throughout the day. From 2013 to 2018, mobile e-commerce as a percentage of overall e-commerce is projected to increase from 15% to 30%, according to eMarketer Inc., a market research firm.

 

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    Why Home is Different

          Home is Shopped Differently than Other Retail Verticals:    Homes are very personal expressions of self and identity, which is why many consumers seek uniqueness, crave originality and enjoy the feeling created by home design, furniture and décor. Consumers shopping for home goods often cannot articulate what they are looking for other than to describe a feeling or visual image that they want to capture in their home. In addition, while consumers typically know the names of big box and specialty retailers that offer various home products, we believe they rarely know the names of the product brands or suppliers. We believe traditional search-based sites that rely on directed product search (e.g., "running sneakers") or brand name search (e.g., "Samsung 32-inch LCD television") have difficulty serving customers shopping for home products in this more emotional, visual and inspirational manner.

          Home Shoppers Desire Uniqueness, which Requires Vast Selection:    In the mass market for home goods, consumers with different tastes, styles, purchasing goals and budgets require a broad selection of products and choices. This need for selection applies across many home categories, including furniture, décor, lighting, kitchen, bed & bath, outdoor, home improvement and baby & kids, each of which has dozens of sub-categories with hundreds to tens of thousands of products. Brick and mortar home goods retailers must balance a consumer's desire for uniqueness, which requires massive selection, with the challenges of high inventory carrying costs and limited showroom and storage space.

          Time Consuming and Inconvenient for Consumers to Shop across Brick and Mortar Home Retailers:    To browse a vast selection of products across highly-fragmented brick and mortar retailers, consumers must shop multiple stores. For example, if a nearby furniture retailer has 20 bedroom sets on its showroom floor, a consumer may feel she must visit multiple stores to see a wide enough selection to make an informed purchase decision that satisfies her style and budget needs. We believe the lack of an easy-to-browse, one-stop shopping experience with massive selection has led to dissatisfaction with brick and mortar home goods shopping. In contrast, Wayfair.com offers over 900 bedroom sets across many styles and prices, which mitigates the need for a consumer to visit multiple stores to find the perfect item at a price she can afford.

          Difficult to Browse, Value Shop and Price Compare:    Mass market home goods shoppers frequently seek a wide variety of information from disparate online and offline sources to research home goods products. Because this information is not easily comparable, it is difficult for consumers to make informed home décor and design-related decisions. In addition, consumers may struggle to mix and match different home goods items they are considering buying from multiple traditional brick and mortar retailers.

          Challenging Logistics for Consumers and Retailers:    Logistics, fulfillment and customer service for home goods products are challenging given the various categories, shapes, sizes, weights and price points in the home market. Given the personal nature and high touch physical characteristics of home goods products, many consumers seek first-rate customer service so they are not burdened with managing delivery, shipping and return logistics on their own. However, we believe big box retailers that serve the mass market for home goods are often unable or unwilling to provide this level of service. In addition, many regional retailers do not ship nationally, which we believe is because they lack the required scalable technology, operations and distribution infrastructure.

 

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Our Solution

    Key Benefits for Our Customers

          We offer our consumers vast selection, easy access and value, inspirational content, personalized and mobile shopping experiences and superior customer service to help them find the perfect item at a price they can afford.

          Broad Selection and Choice:    We offer one of the largest online selections of furniture, home furnishings, décor and goods with over seven million products from over 7,000 suppliers.

          Easy Access and Value:    We offer consumers a one-stop shop with home goods pricing designed to be on par with big box retailers and a merchandising experience designed to be on par with specialty retailers.

          Inspirational Photography and Editorial Content:    To inspire customers, we produce beautiful imagery and highly-tailored editorial content both in house and through third parties.

          Personalized and Mobile Shopping Experiences:    We use personalization, based on past browsing, shopping patterns and personal preferences, to create a more engaging consumer experience. Our investment in mobile allows us to deliver value, convenience and inspiration to consumers anytime and anywhere.

          Superior Customer Service:    Our customer service organization has over 440 representatives who help consumers navigate our sites, answer questions and help complete orders. This team helps us build trust with consumers, build our brand awareness, enhance our reputation and drive sales.

    Key Benefits for Our Suppliers

          Through our technology platform, we offer our suppliers a cost-effective channel, the ability to leverage our technological expertise, a real-time view of our demand and proven logistics capabilities to help sell their products.

          Cost-Effective Access to Our Large Customer Base:    We sell products from over 7,000 suppliers, many of which are small, family-run operations without well-known product brands and without easy retail access to a large customer base. We provide our suppliers with access to our customer base of 2.6 million active customers, enabling them to increase their sales and access the growing e-commerce market.

          Ability to Leverage Our Technological Expertise to Drive Sales:    Our technology platform is designed to allow suppliers to easily provide us with their full product selection. Through our technology platform, we believe many of our suppliers have increased their sales, which has strengthened their loyalty to us.

          Real-Time View of Demand and Inventory Needs via Data and Analytics:    We offer our suppliers a real-time view of our demand and inventory needs via powerful data and analytics.

          Proven Logistics Capabilities:    Our logistics infrastructure allows us to ship directly from our suppliers to our customers. This supplier direct fulfillment network is a key component of our custom-built and seamlessly integrated technology and operational platform.

 

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Our Strengths

          We believe we have achieved our market leading position through the following key strengths:

    our large scale drives powerful network effects;

    superior logistics infrastructure and supplier direct fulfillment network require minimal inventory and capital expenditures;

    trusted brand with rapidly growing awareness;

    personalized shopping experiences and differentiated use of data, analytics and technology drive high customer repeat rates;

    powerful and custom-built technology platform;

    well-positioned to benefit from platform shift to mobile; and

    proven and operationally disciplined management team.

Our Growth Strategy

          Our goal is to further improve our leadership in the home goods market by pursuing the following key strategies:

    continue building leading retail home brands;

    acquire more customers;

    continue to invest in the consumer experience;

    increase repeat purchasing through merchandising, data, analytics and technology;

    add new suppliers and deepen relationships with our existing suppliers;

    continue to invest in our technology and operational platform, including our mobile platform;

    expand internationally; and

    opportunistically pursue strategic acquisitions.

Risk Factors

          Our business is subject to numerous risks and uncertainties. Please carefully read "Risk Factors" beginning on page 14 and "Special Note Regarding Forward-Looking Statements" on page 42 for a more detailed explanation of the risks and uncertainties before investing in our Class A common stock. For example, any of the following risks may negatively affect our competitiveness or growth strategy, which could cause the price of our Class A common stock to decline and result in a loss of a part or all of your investment:

    Our recent growth rates may not be sustainable or indicative of our future growth.

    If we fail to manage our growth effectively, our business, financial condition and operating results could be harmed.

    If we fail to acquire new customers, or fail to do so in a cost-effective manner, we may not be able to increase net revenue per active customer or achieve profitability.

    Our success depends in part on our ability to increase our net revenue per active customer. If our efforts to increase customer loyalty and repeat purchasing as well as maintain high levels of customer engagement and average order values of our customers are not successful, our growth prospects and revenue will be materially adversely affected.

 

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    Our business depends on our ability to build and maintain strong brands. We may not be able to maintain and enhance our existing brands if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers' expectations, which could materially adversely affect our business, results of operations and growth prospects.

    Our efforts to launch new brands and expand our existing brand portfolio internationally may not be successful.

    Expansion of our international operations will require management attention and resources, involves additional risks, and may be unsuccessful, which could harm our future business development and existing domestic operations.

    We have a history of losses, and we have accumulated $277.1 million in common members' deficit as of June 30, 2014. We expect to have increasing operating losses and negative cash flow as we continue to expand our business.

    System interruptions that impair customer access to our sites or other performance failures in our technology infrastructure could damage our business, reputation and brand and substantially harm our business and results of operations.

    Our business is highly competitive. Competition presents an ongoing threat to the success of our business.

    The dual class structure of our common stock and the existing ownership of capital stock by our executive officers, directors and their affiliates have the effect of concentrating voting control with our executive officers, directors and their affiliates for the foreseeable future, which will limit your ability to influence corporate matters. Following this offering, our co-founders will own shares representing approximately       % of the economic interest and       % of the voting power of our outstanding capital stock, and, together with our other executive officers, directors and their affiliates, will own shares representing approximately       % of the economic interest and        % of the voting power of our outstanding capital stock.

Company Information and Reorganization

          We began operating as Smart Tech Toys, Inc., a Massachusetts corporation, in May 2002 and changed our name to CSN Stores, Inc. in February 2003. In March 2008, we formed, and contributed all of the assets and liabilities of CSN Stores, Inc. to, a subsidiary, CSN Stores LLC, and we continued operating our business through this Delaware limited liability company. In late 2011, we changed the name of CSN Stores, Inc. to SK Retail, Inc. and changed our name from CSN Stores LLC to Wayfair LLC. Prior to the completion of this offering, we intend to complete an internal restructuring, which we refer to in this prospectus as the Corporate Reorganization. The proposed structure of the Corporate Reorganization is described in the section titled "Organizational Structure." Following the Corporate Reorganization, (i) Wayfair Inc. would be a holding company with no material assets other than 100% of the equity interests in Wayfair LLC and (ii) the holders of equity interests in Wayfair LLC would become stockholders of Wayfair Inc. Prior to the Corporate Reorganization, Wayfair Inc. will not have conducted any activities other than in connection with its formation and in preparation for this offering. Accordingly, our consolidated financial statements and other financial information included in this prospectus as of dates and for periods prior to the date of the Corporate Reorganization reflect the results of operations and financial position of Wayfair LLC. Our consolidated financial information, if any, as of dates and for periods from and after the date of the Corporate Reorganization reflect the results of operations and financial condition of Wayfair Inc. and its wholly-owned subsidiary, Wayfair LLC, unless otherwise expressly stated.

 

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          While our outstanding equity as a limited liability company prior to the Corporate Reorganization is called "common units," "incentive units" and "preferred units," we refer to such common units and incentive units as common stock and to the preferred units as preferred stock for the periods prior to the Corporate Reorganization for ease of comparison, except in the sections titled "Prospectus Summary — Summary Consolidated Financial Data," "Organizational Structure," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the audited financial statements included elsewhere in this prospectus and where otherwise indicated in this prospectus. For the same reason, we also refer to our "restricted unit bonus awards" and "restricted unit purchase right awards" under our Wayfair LLC second amended and restated 2010 incentive plan, or 2010 Plan, as restricted common stock and to our "deferred units" under our 2010 Plan as our restricted stock units.

          Our executive offices are located at 4 Copley Place, 7th Floor, Boston, MA 02116, and our telephone number is (617) 532-6100. Our corporate website address is Wayfair.com. The information contained in, or accessible through, our website does not constitute part of this prospectus, and investors should not rely on any such information in deciding whether to purchase our Class A common stock.

          We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we become a large accelerated filer, which means that we have been public for at least 12 months, have filed at least one annual report and the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last day of our then most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We refer to the Jumpstart Our Business Startups Act of 2012 herein as the "JOBS Act," and references herein to "emerging growth company" shall have the meaning associated with such term in the JOBS Act.

 

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The Offering

Issuer

  Wayfair Inc.

Class A common stock we are offering

 

             shares

Class A common stock the selling stockholders are offering

 

             shares

Class A common stock to be outstanding after the offering

 

             shares

Class B common stock to be outstanding after the offering

 

             shares

Total Class A common stock and Class B common stock to be outstanding after the offering

 

             shares

Option to purchase additional shares of Class A common stock

 

             shares being offered by the selling stockholders

Voting Rights

 

We have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share, and each share of Class B common stock is entitled to ten votes per share. The Class B common stock also has approval rights over certain corporate actions. Following the completion of this offering, each share of Class B common stock may be converted into one share of Class A common stock at the option of its holder and will be automatically converted into one share of Class A common stock upon transfer thereof, subject to certain exceptions. In addition, upon the date on which there are fewer than             shares of Class B common stock outstanding (as adjusted for stock splits), or in the event of the affirmative vote or written consent of holders of at least 662/3% of the outstanding shares of Class B common stock, all outstanding shares of Class B common stock shall convert automatically into Class A common stock. Please read the section titled "Description of Capital Stock" for additional information.

 

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Use of Proceeds

 

We expect to distribute approximately $24.3 million of the net proceeds, or approximately    %, to our existing Series A preferred stockholders upon conversion to common stock in connection with the completion of this offering to satisfy the remaining portion of an accrued cash dividend. Our co-founders and certain of our directors, executive officers and holders of more than 5% of our voting securities hold 85% of our outstanding shares of Series A preferred stock and, as a result of their ownership, will receive 85% of the dividend payment, or approximately $20.6 million. We also expect to distribute approximately $         million of the net proceeds to satisfy minimum statutory tax withholding and remittance obligations related to the settlement of outstanding restricted stock units upon the completion of this offering. We intend to use the remaining net proceeds to us from this offering for working capital and other general corporate purposes. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business. We will not receive any proceeds from the sale of shares by the selling stockholders. Please read the section titled "Use of Proceeds" for additional information.

Risk Factors

 

Please read the section titled "Risk Factors" beginning on page 14 and other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our Class A common stock.

Proposed New York Stock Exchange symbol

 

"W"



          Unless otherwise indicated, this prospectus reflects and assumes the following:

    the consummation of the Corporate Reorganization described in the section titled "Organizational Structure" prior to the completion of this offering;

    the reclassification of our common stock and the automatic conversion of all outstanding shares of our preferred stock into shares of our Class B common stock, which will occur immediately prior to the completion of this offering;

    the filing and effectiveness of our restated certificate of incorporation and the adoption of our amended and restated bylaws, each of which will occur immediately prior to the completion of this offering; and

    no exercise by the underwriters of their option to purchase additional shares of Class A common stock.

 

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          The number of shares of our Class A common stock and Class B common stock to be outstanding after this offering is based on no shares of Class A common stock and                           shares of Class B common stock outstanding as of June 30, 2014 and excludes:

    646,413 shares of Class B common stock issuable upon exercise of options to purchase common stock outstanding as of June 30, 2014 under our 2010 Plan at a weighted-average exercise price of $2.98 per share;

    6,085,085 shares of Class B common stock issuable from restricted stock units outstanding as of June 30, 2014 under our 2010 Plan; and

                           shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our 2014 Incentive Award Plan, or our 2014 Plan, which will become effective prior to the completion of this offering.

 

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Summary Consolidated Financial Data

          The following tables set forth a summary of our historical financial data as of, and for the period ended on, the dates indicated. The statement of operations data for the years ended December 31, 2012 and 2013 are derived from the audited financial statements of Wayfair LLC included elsewhere in this prospectus. The statement of operations data for the six months ended June 30, 2013 and 2014 are derived from the unaudited financial statements of Wayfair LLC included elsewhere in this prospectus. The statement of operations data for the year ended December 31, 2011 are derived from the unaudited financial statements of Wayfair LLC not included elsewhere in this prospectus. You should read this data together with the audited financial statements and related notes appearing elsewhere in this prospectus and the information in the sections titled "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The historical results are not necessarily indicative of our future results.

 
  Years ended December 31,   Six months
ended June 30,
 
 
 
2011
 
2012
 
2013
 
2013
 
2014
 
 
  (in thousands, except share and per share data)
 

Consolidated Statements of Operations:

                               

Net revenue

  $ 517,336   $ 601,028   $ 915,843   $ 383,208   $ 574,144  

Cost of goods sold

    385,824     455,879     691,602     288,337     440,483  
                       

Gross profit

    131,512     145,149     224,241     94,871     133,661  

Operating expenses:

   
 
   
 
   
 
   
 
   
 
 

Sales and marketing

    106,794     113,370     177,475     72,714     138,228  

General and administrative

    36,772     52,961     62,246     30,014     46,355  

Amortization of acquired intangible assets

        212     539     106     499  
                       

Total operating expenses

    143,566     166,543     240,260     102,834     185,082  
                       

Loss from operations

    (12,054 )   (21,394 )   (16,019 )   (7,963 )   (51,421 )

Interest income, net

    157     234     245     124     133  

Gain on joint venture acquisition                      

    1,425                  

Other (expense) income, net

    (675 )   155     294     (504 )   (96 )
                       

Loss before income taxes

    (11,147 )   (21,005 )   (15,480 )   (8,343 )   (51,384 )

Provision for income taxes

    (22 )   (50 )   (46 )   5     (17 )
                       

Net loss

  $ (11,169 ) $ (21,055 ) $ (15,526 ) $ (8,338 ) $ (51,401 )

Accretion of convertible redeemable preferred units

    (9,337 )   (12,154 )   (25,388 )   (15,948 )   (11,755 )
                       

Net loss attributable to common unit holders

    (20,506 )   (33,209 )   (40,914 )   (24,286 )   (63,156 )

Net loss attributable to common unit holders per unit — basic and diluted(1)

 
$

(0.50

)

$

(0.80

)

$

(0.99

)

$

(0.59

)

$

(1.55

)
                       
                       

Weighted average number of common units outstanding used in computing per unit amounts — basic and diluted(1)

    41,271,992     41,271,992     41,331,546     41,271,992     40,828,976  
                       
                       

Pro forma net loss per share — basic and diluted (unaudited)(1)

              $           $    
                             
                             

Pro forma weighted average number of common shares outstanding (unaudited)(1)

                               
                             
                             

(1)
See Note 15 to our consolidated financial statements for an explanation of the calculations of our basic and diluted net loss per share of common stock, and pro forma net loss per share of common stock.

 

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  June 30, 2014  
 
 
Actual
 
Pro Forma(1)
 
Pro Forma as Adjusted(2)
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                   

Cash and cash equivalents

  $ 87,781   $ 66,885   $    

Working capital

    68,706     47,810        

Total assets

    277,018     256,122        

Deferred revenue

    18,033     18,033        

Convertible redeemable preferred units

    392,715            

Total member's (deficit)/stockholders' equity

  $ (277,455 ) $ 94,058   $    

(1)
The pro forma column reflects (i) the consummation of the proposed Corporate Reorganization described in the section titled "Organizational Structure," including a net adjustment of $0.3 million to accumulated (deficit)/retained earnings in connection with deferred income tax liabilities assumed to be recognized in connection with the Corporate Reorganization, all presented as if these events had occurred as of June 30, 2014, (ii) the reclassification of all outstanding shares of common stock and the automatic conversion of all outstanding shares of preferred stock into shares of Class B common stock immediately prior to the completion of this offering, (iii) an adjustment of $13.3 million to reduce the carrying value of the convertible redeemable preferred units to reflect conversion value assuming the security was converted on the balance sheet date, (iv) the distribution of accrued dividend amounts payable to certain holders of our Series A convertible redeemable preferred units upon conversion to shares of Class B common stock equal to the members' distribution payable balance on our consolidated financial statements as of the completion of this offering, which amount was $20.9 million as of June 30, 2014, (v) the equity compensation expense of $40.3 million associated with the common option units, deferred units and restricted common units that have satisfied the service condition as of June 30, 2014 and (vi) the reclassification of $1.5 million from due to related party to accrued expenses to reflect the effect of consolidation of SK Retail.

(2)
The pro forma as adjusted column gives effect to the pro forma adjustments set forth above and (i) the receipt of $              million in proceeds from the sale and issuance by us of             shares of Class A common stock in this offering, based on the initial public offering price of $             per share, the midpoint of the range listed on the cover page of this prospectus, after deducting the estimated underwriting discount and estimated offering expenses payable by us, and (ii) the payment of approximately $              million in cash to satisfy minimum statutory tax withholding and remittance obligations in connection with the net settlement of deferred units outstanding under our 2010 Plan.

 

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RISK FACTORS

          Investing in our Class A common stock involves a high degree of risk. Before you invest, you should carefully consider the following risks, as well as general economic and business risks and all of the other information contained in this prospectus. Any of the following risks could have a material adverse effect on our business, operating results and financial condition and cause the trading price of our Class A common stock to decline, which could cause you to lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained in this prospectus, including the section titled "Special Note Regarding Forward-Looking Statements" and our financial statements and the related notes thereto.

Risks Related to Our Business and Industry

        Our recent growth rates may not be sustainable or indicative of our future growth.

          In late 2011, we closed and permanently redirected over 240 of our niche websites into Wayfair.com. Additionally, we launched Joss & Main. In 2013, we acquired DwellStudio, and in 2014, we launched Birch Lane. Because we launched most of our brands recently, we have a limited amount of information regarding the purchasing patterns of our customers on these websites. We depend heavily on this information to plan and forecast our business, including anticipated customer acquisition costs, net revenue per active customer and other key performance metrics. If our assumptions prove to be wrong, we may spend more than we anticipate to acquire and retain customers or may generate less net revenue per active customer than anticipated, any of which could have a negative impact on our business and results of operations. In addition, our historical growth rates may not be sustainable or indicative of future growth.

          We believe that our continued revenue growth will depend upon, among other factors, our ability to:

    build our brands and launch new brands;

    acquire more customers;

    develop new features to enhance the consumer experience on our websites, mobile-optimized websites and mobile applications, which we collectively refer to as our sites;

    increase the frequency with which new and repeat customers purchase products on our sites through merchandising, data, analytics and technology;

    add new suppliers and deepen our relationships with our existing suppliers;

    enhance the systems our consumers use to interact with our sites and invest in our infrastructure platform;

    expand internationally; and

    pursue strategic acquisitions.

          We cannot assure you we will be able to achieve any of the foregoing. Our customer base may not continue to grow or may decline as a result of increased competition and the maturation of our business. Failure to continue our revenue growth rates could have a material adverse effect on our financial condition and results of operations. You should not rely on our historical rate of revenue growth as an indication of our future performance.

        If we fail to manage our growth effectively, our business, financial condition and operating results could be harmed.

          To manage our growth effectively, we must continue to implement our operational plans and strategies, improve and expand our infrastructure of people and information systems and expand,

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train and manage our employee base. We have rapidly increased employee headcount since our inception to support the growth in our business, and we intend for this growth to continue for the foreseeable future. The number of our employees increased from 1,169 full-time equivalents as of December 31, 2012 to 1,558 full-time equivalents as of December 31, 2013, and we expect to add a significant number of employees in 2014. To support continued growth, we must effectively integrate, develop and motivate a large number of new employees. We face significant competition for personnel, particularly in the Boston, Massachusetts area where our headquarters are located. Failure to manage our hiring needs effectively or successfully integrate our new hires may have a material adverse effect on our business, financial condition and operating results.

          Additionally, the growth of our business places significant demands on our management and other employees. For example in 2013, we launched hundreds of promotional events across thousands of products each month on Wayfair.com, in addition to hundreds of promotional events — or "Daily Events" — on Joss & Main in which we promote thousands of products via emails, "push" notifications and personalized displays. These events require us to produce updates of our sites and emails to our customers on a daily basis with different products, photos and text. The growth of our business may require significant additional resources to meet these daily requirements, which may not scale in a cost-effective manner or may negatively affect the quality of our sites and customer experience. We are also required to manage relationships with a growing number of suppliers, customers and other third parties. For example, in 2013, we added over 800 new suppliers. Our information technology systems and our internal controls and procedures may not be adequate to support future growth of our supplier base. If we are unable to manage the growth of our organization effectively, our business, financial condition and operating results may be materially adversely affected.

        If we fail to acquire new customers, or fail to do so in a cost-effective manner, we may not be able to increase net revenue per active customer or achieve profitability.

          Our success depends on our ability to acquire customers in a cost-effective manner. In order to expand our customer base, we must appeal to and acquire customers who have historically used other means of commerce to purchase home goods and may prefer alternatives to our offerings, such as traditional brick and mortar retailers, the websites of our competitors or a supplier's own website. We have made significant investments related to customer acquisition and expect to continue to spend significant amounts to acquire additional customers. For example, we have recently expanded our national U.S. television branding and advertising campaigns. Such campaigns are expensive and may not result in the cost-effective acquisition of customers. We cannot assure you that the net profit from new customers we acquire will ultimately exceed the cost of acquiring those customers. If we fail to deliver a quality shopping experience, or if consumers do not perceive the products we offer to be of high value and quality, we may not be able to acquire new customers. If we are unable to acquire new customers who purchase products in numbers sufficient to grow our business, we may not be able to generate the scale necessary to drive beneficial network effects with our suppliers, our net revenue may decrease, and our business, financial condition and operating results may be materially adversely affected.

          We believe that many of our new customers originate from word-of-mouth and other non-paid referrals from existing customers. Therefore we must ensure that our existing customers remain loyal to us in order to continue receiving those referrals. If our efforts to satisfy our existing customers are not successful, we may not be able to acquire new customers in sufficient numbers to continue to grow our business, or we may be required to incur significantly higher marketing expenses in order to acquire new customers.

          We also utilize paid and non-paid advertising. Our paid advertising includes search engine marketing, display advertising, paid social media and television advertisements. Our non-paid

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advertising efforts include search engine optimization, non-paid social media, mobile "push" notifications and email. We obtain a significant amount of traffic via search engines and, therefore, rely on search engines such as Google, Bing and Yahoo!. Search engines frequently update and change the logic that determines the placement and display of results of a user's search, such that the purchased or algorithmic placement of links to our sites can be negatively affected. Moreover, a search engine could, for competitive or other purposes, alter its search algorithms or results, causing our sites to place lower in search query results. A major search engine could change its algorithms in a manner that negatively affects our paid or non-paid search ranking, and competitive dynamics could impact the effectiveness of search engine marketing or search engine optimization. We also obtain a significant amount of traffic via social networking websites or other channels used by our current and prospective customers. As e-commerce and social networking continue to rapidly evolve, we must continue to establish relationships with these channels and may be unable to develop or maintain these relationships on acceptable terms. If we are unable to cost-effectively drive traffic to our sites, our ability to acquire new customers and our financial condition would suffer.

        Our success depends in part on our ability to increase our net revenue per active customer. If our efforts to increase customer loyalty and repeat purchasing as well as maintain high levels of customer engagement and average order values of our customers are not successful, our growth prospects and revenue will be materially adversely affected.

          Our ability to grow our business depends on our ability to retain our existing customer base and generate increased revenue and repeat purchases from this customer base, and maintain high levels of customer engagement. To do this, we must continue to provide our customers and potential customers with a unified, convenient, efficient and differentiated shopping experience by:

    providing imagery, tools and technology that attract customers who historically would have bought elsewhere;

    maintaining a high-quality and diverse portfolio of products;

    managing over 7,000 suppliers to deliver products on time and without damage; and

    continuing to invest in our mobile platforms.

          If we fail to increase net revenue per active customer, generate repeat purchases or maintain high levels of customer engagement and average order value, our growth prospects, operating results and financial condition could be materially adversely affected.

        Our business depends on our ability to build and maintain strong brands. We may not be able to maintain and enhance our existing brands if we receive unfavorable customer complaints, negative publicity or otherwise fail to live up to consumers' expectations, which could materially adversely affect our business, results of operations and growth prospects.

          We currently offer five distinct brands to our customers, but we have a limited operating history with most of these brands. Maintaining and enhancing these brands are critical to expanding our base of customers and suppliers. However, a significant portion of our customers' brand experience depends on third parties outside of our control, including suppliers and logistics providers such as FedEx, UPS and the U.S. Postal Service. If these third parties do not meet our or our customers' expectations, our brand may suffer irreparable damage. In addition, maintaining and enhancing these brands may require us to make substantial investments, and these investments may not be successful. If we fail to promote and maintain our brands, or if we incur excessive expenses in this effort, our business, operating results and financial condition may be materially adversely affected. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brands may become increasingly difficult and expensive. Maintaining and

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enhancing our brands will depend largely on our ability to provide high quality products to our customers and a reliable, trustworthy and profitable sales channel to our suppliers, which we may not do successfully.

          Customer complaints or negative publicity about our sites, products, product delivery times, customer data handling and security practices or customer support, especially on blogs, social media websites and our sites, could rapidly and severely diminish consumer use of our sites and consumer and supplier confidence in us and result in harm to our brands.

        Our efforts to launch new brands and expand our existing brand portfolio internationally may not be successful.

          Our business success depends to some extent on our ability to expand our customer offerings by launching new brands and expanding our existing brand portfolio into new geographies. For example, we recently launched Birch Lane in the United States and Canada and we recently launched our Joss & Main brand in the United Kingdom. Launching new brands or expanding our existing brand portfolio internationally requires significant upfront investments, including investments in marketing, information technology and additional personnel. Expanding our brands internationally is particularly challenging because it requires us to gain country-specific knowledge about consumers and regional competitors, construct home goods catalogs specific to the country, build local logistics capabilities and customize portions of our technology for local markets. We may not be able to generate satisfactory revenue from these efforts to offset these upfront costs. Any lack of market acceptance of our efforts to launch new brands or expand our existing brand portfolio could have a material adverse effect on our business, prospects, financial condition and results of operations.

        Expansion of our international operations will require management attention and resources, involves additional risks, and may be unsuccessful, which could harm our future business development and existing domestic operations.

          We believe international expansion represents a significant growth opportunity for us. Today, we deliver products to customers in a number of countries, including the United States, the United Kingdom, Canada, Australia, Germany, Austria, Ireland and New Zealand. We plan to expand into other international markets in order to grow our business, which will require significant management attention and resources. For example, we have made and will continue to make significant investments in information technology, logistics, supplier relationships, merchandising and marketing in the foreign jurisdictions in which we operate or plan to operate. We have limited experience in selling our products to conform to different local cultures, standards and regulations, and the products we offer may not appeal to customers in the same manner, if at all, in other geographies. We may have to compete with local companies which understand the local market better than we do and/or may have greater brand recognition than we do. In addition, to deliver satisfactory performance for customers in international locations, it may be necessary to locate physical facilities, such as consolidation centers, in foreign markets, and we may have to invest in these facilities before we can determine whether or not our foreign operations are successful. We have limited experience establishing such facilities internationally. We may not be successful in expanding into additional international markets or in generating net revenue from foreign operations. Furthermore, different privacy, censorship, liability, intellectual property and other laws and regulations in foreign countries may cause our business, financial condition and operating results to be materially adversely affected.

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          Our future results could be materially adversely affected by a number of factors inherent in international operations, including:

    localization of our product offerings, including translation into foreign languages and adaptation for local practices;

    the need to vary our practices in ways with which we have limited or no experience or which are less profitable or carry more risk to us;

    unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions;

    differing labor regulations where labor laws may be more advantageous to employees as compared to the United States;

    more stringent regulations relating to data privacy and security, including the use of commercial and personal information, particularly in the European Union;

    changes in a specific country's or region's political or economic conditions;

    the rising cost of labor in the foreign countries in which our suppliers operate, resulting in increases in our costs of doing business internationally;

    challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs and maintain our corporate culture across geographies;

    risks resulting from changes in currency exchange rates;

    limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;

    different or lesser intellectual property protection;

    exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act and similar laws and regulations in other jurisdictions;

    import/export controls; and

    logistics and sourcing.

          Operating internationally requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required to establish and expand our international operations will produce desired levels of net revenue or profitability. If we invest substantial time and resources to establish and expand our international operations and are unable to do so successfully and in a timely manner, our business, financial condition and operating results may be materially adversely affected.

        We have a history of losses and expect to have increasing operating losses and negative cash flow as we continue to expand our business.

          We have a history of losses, and we have accumulated $277.1 million in common members' deficit as of June 30, 2014. We expect our operating losses and negative cash flow to increase significantly in the near-term as we increase investment in our business. Because the market for purchasing home goods online is rapidly evolving and has not yet reached widespread adoption, it is difficult for us to predict our future operating results. As a result, our losses may be larger than anticipated, and we may never achieve profitability. We expect our operating expenses to increase over the next several years as we increase our advertising budget, hire additional personnel and continue to develop features on our sites. In particular, we intend to continue to invest substantial resources in marketing to acquire new customers. In addition, as we grow as a newly public

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company, we have and will continue to incur additional significant legal, accounting and other expenses that we did not incur as a private company. Furthermore, if our future growth and operating performance fail to meet investor or analyst expectations, or if we have future negative cash flow or losses resulting from our investment in acquiring new customers, our financial condition and stock price could be materially adversely affected.

        System interruptions that impair customer access to our sites or other performance failures in our technology infrastructure could damage our business, reputation and brand and substantially harm our business and results of operations.

          The satisfactory performance, reliability and availability of our sites, transaction processing systems and technology infrastructure are critical to our reputation and our ability to acquire and retain customers, as well as maintain adequate customer service levels.

          We currently utilize two third-party data center hosting facilities. If the main facility where substantially all of our computer and communications hardware is located fails, or if we suffer an interruption or degradation of services at our main facility, we could lose customer data and miss order fulfillment deadlines, which could harm our business. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, cyber-attacks, data loss, acts of war, break-ins, earthquake and similar events. In the event of a failure of our main facility, the failover to our back-up facility could take substantial time, during which time our sites could be completely shut down. Our back-up facility is designed to support transaction volume at a level slightly above our average daily sales, but is not adequate to support spikes in demand. The back-up facility may not process effectively during time of higher traffic to our sites and may process transactions more slowly and may not support all of our sites' functionality.

          We use complex proprietary software in our technology infrastructure, which we seek to continually update and improve. We may not always be successful in executing these upgrades and improvements, and the operation of our systems may be subject to failure. In particular, we have in the past and may in the future experience slowdowns or interruptions in some or all of our sites when we are updating them, and new technologies or infrastructures may not be fully integrated with existing systems on a timely basis, or at all. Additionally, if we expand our use of third-party services, including cloud-based services, our technology infrastructure may be subject to increased risk of slowdown or interruption as a result of integration with such services and/or failures by such third-parties, which are out of our control. Our net revenue depends on the number of visitors who shop on our sites and the volume of orders we can handle. Unavailability of our sites or reduced order fulfillment performance would reduce the volume of goods sold and could also materially adversely affect consumer perception of our brand. We may experience periodic system interruptions from time to time. In addition, continued growth in our transaction volume, as well as surges in online traffic and orders associated with promotional activities or seasonal trends in our business, place additional demands on our technology platform and could cause or exacerbate slowdowns or interruptions. If there is a substantial increase in the volume of traffic on our sites or the number of orders placed by customers, we will be required to further expand and upgrade our technology, transaction processing systems and network infrastructure. There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our sites or expand and upgrade our systems and infrastructure to accommodate such increases on a timely basis. In order to remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our sites, which is particularly challenging given the rapid rate at which new technologies, customer preferences and expectations and industry standards and practices are evolving in the e-commerce industry. Accordingly, we redesign and enhance various functions on our sites on a regular basis, and we may experience instability and performance issues as a result of these changes.

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          Any slowdown or failure of our sites and the underlying technology infrastructure could harm our business, reputation and our ability to acquire, retain and serve our customers, which could materially adversely affect our results of operations. Our disaster recovery plan may be inadequate, and our business interruption insurance may not be sufficient to compensate us for the losses that could occur.

        Our business is highly competitive. Competition presents an ongoing threat to the success of our business.

          Our business is rapidly evolving and intensely competitive, and we have many competitors in different industries. Our competition includes: furniture stores, big box retailers, department stores, specialty retailers, and online home goods retailers and marketplaces, including:

    Furniture Stores:  Ashley Furniture, Bob's Discount Furniture, Havertys, Raymour & Flanagan and Rooms To Go;

    Big Box Retailers:  Bed, Bath & Beyond, Home Depot, IKEA, Lowe's, Target and Walmart;

    Department Stores:  JCPenney and Macy's;

    Specialty Retailers:  Crate and Barrel, Ethan Allen, HomeGoods, Pottery Barn and Restoration Hardware; and

    Online Home Goods Retailers and Online Marketplaces:  Amazon, eBay and One Kings Lane.

          We expect competition in e-commerce generally to continue to increase. We believe that our ability to compete successfully depends upon many factors both within and beyond our control, including:

    the size and composition of our customer base;

    the number of suppliers and products we feature on our sites;

    our selling and marketing efforts;

    the quality, price and reliability of products offered either by us;

    the convenience of the shopping experience that we provide;

    our ability to distribute our products and manage our operations; and

    our reputation and brand strength.

          Many of our current competitors have, and potential competitors may have, longer operating histories, greater brand recognition, larger fulfillment infrastructures, greater technical capabilities, faster and less costly shipping, significantly greater financial, marketing and other resources and larger customer bases than we do. These factors may allow our competitors to derive greater net revenue and profits from their existing customer base, acquire customers at lower costs or respond more quickly than we can to new or emerging technologies and changes in consumer habits. These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build larger customer bases or generate net revenue from their customer bases more effectively than we do.

        Purchasers of home goods may not choose to shop online, which would prevent us from growing our business.

          The online market for home goods in the United States is less developed than the online market for apparel, consumer electronics and other consumer products in the United States and,

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we believe, only accounts for approximately 7% of the market as a whole. If the online market for home goods does not gain acceptance, our business may suffer. Our success will depend, in part, on our ability to attract consumers who have historically purchased home goods through traditional retailers. Furthermore, we may have to incur significantly higher and more sustained advertising and promotional expenditures in order to attract additional online consumers to our sites and convert them into purchasing customers. Specific factors that could impact consumers' willingness to purchase home goods from us include:

    concerns about buying products, and in particular larger products, without a physical storefront, face-to-face interaction with sales personnel and the ability to physically examine products;

    delivery time associated with online orders;

    actual or perceived lack of security of online transactions and concerns regarding the privacy of personal information;

    delayed shipments or shipments of incorrect or damaged products;

    inconvenience associated with returning or exchanging items purchased online; and

    usability, functionality and features of our sites.

          If the shopping experience we provide does not appeal to consumers or meet the expectations of existing customers, we may not acquire new customers at rates consistent with historical periods, and existing customers' buying patterns and levels may be less than historical rates.

        We may be subject to product liability claims if people or property are harmed by the products we sell.

          Some of the products we sell or have manufactured for us may expose us to product liability claims and litigation or regulatory action relating to personal injury, death or environmental or property damage. Some of our agreements with our suppliers and international manufacturers may not indemnify us from product liability for a particular supplier's or international manufacturers' products, or our suppliers or international manufacturers may not have sufficient resources or insurance to satisfy their indemnity and defense obligations. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.

        Risks associated with the suppliers from whom our products are sourced could materially adversely affect our financial performance as well as our reputation and brand.

          We depend on our ability to provide our customers with a wide range of products from qualified suppliers in a timely and efficient manner. Political and economic instability, the financial stability of suppliers, suppliers' ability to meet our standards, labor problems experienced by suppliers, the availability of raw materials, merchandise quality issues, currency exchange rates, transport availability and cost, transport security, inflation, and other factors relating to the suppliers are beyond our control.

          Our agreements with most of our suppliers do not provide for the long-term availability of merchandise or the continuation of particular pricing practices, nor do they restrict such suppliers from selling products to other buyers. There can be no assurance that our current suppliers will continue to seek to sell us products on current terms or that we will be able to establish new or otherwise extend current supply relationships to ensure product acquisitions in a timely and efficient manner and on acceptable commercial terms. Our ability to develop and maintain relationships with

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reputable suppliers and offer high quality merchandise to our customers is critical to our success. If we are unable to develop and maintain relationships with suppliers that would allow us to offer a sufficient amount and variety of quality merchandise on acceptable commercial terms, our ability to satisfy our customers' needs, and therefore our long-term growth prospects, would be materially adversely affected.

          We also are unable to predict whether any of the countries in which our suppliers' products are currently manufactured or may be manufactured in the future will be subject to trade restrictions imposed by the U.S. or foreign governments or the likelihood, type or effect of any such restrictions. Any event causing a disruption or delay of imports from suppliers with international manufacturing operations, including the imposition of additional import restrictions, restrictions on the transfer of funds or increased tariffs or quotas, could increase the cost or reduce the supply of merchandise available to our customers and materially adversely affect our financial performance as well as our reputation and brand. Furthermore, some or all of our suppliers' foreign operations may be adversely affected by political and financial instability, resulting in the disruption of trade from exporting countries, restrictions on the transfer of funds or other trade disruptions.

          In addition, our business with foreign suppliers, particularly with respect to our international sites, may be affected by changes in the value of the U.S. dollar relative to other foreign currencies. For example, any movement by any other foreign currency against the U.S. dollar may result in higher costs to us for those goods. Declines in foreign currencies and currency exchange rates might negatively affect the profitability and business prospects of one or more of our foreign suppliers. This, in turn, might cause such foreign suppliers to demand higher prices for merchandise in their effort to offset any lost profits associated with any currency devaluation, delay merchandise shipments, or discontinue selling to us altogether, any of which could ultimately reduce our sales or increase our costs.

        We may be unable to source additional or strengthen our relationships with suppliers.

          As of December 31, 2013, we had relationships with over 7,000 suppliers. Our agreements with suppliers are generally terminable at will by either party upon short notice. If we do not maintain our existing relationships or build new relationships with suppliers on acceptable commercial terms, we may not be able to maintain a broad selection of merchandise, and our business and prospects would suffer severely.

          In order to attract quality suppliers to our platform, we must:

    demonstrate our ability to help our suppliers increase their sales;

    offer suppliers a high quality, cost-effective fulfillment process; and

    continue to provide suppliers a dynamic and real-time view of our demand and inventory needs via powerful data and analytics capabilities.

          If we are unable to provide our suppliers with a compelling return on investment and an ability to increase their sales, we may be unable to maintain and/or expand our supplier network, which would negatively impact our business.

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        We depend on our suppliers to perform certain services regarding the products that we offer.

          As part of offering our suppliers' products for sale on our sites, these suppliers generally agree to conduct a number of traditional retail operations with respect to their respective products, including maintaining inventory and preparing merchandise for shipment to our customers. We may be unable to ensure that these suppliers will continue to perform these services to our or our customers' satisfaction in a manner that provides our customer with a unified brand experience or on commercially reasonable terms. If our customers become dissatisfied with the services provided by our suppliers, our business, reputation and brands could suffer.

        We depend on our relationships with other third parties, including our retail partners, and changes in our relationships with these parties could adversely impact our revenue and profits.

          In 2013 and the six months ended June 30, 2014, approximately 26% and 18%, respectively, of our net revenue was generated from other operations, consisting primarily of revenue generated online by third parties, which we refer to as our retail partners. Our relationships with our retail partners allow consumers to purchase products offered by us though their websites and mobile applications. Because our agreements with our retail partners are generally terminable at will, we may be unable to maintain these relationships, and our results of operations could fluctuate significantly from period to period depending on the performance of our retail partners and their willingness to continue to offer and/or promote our products. Our agreements with our retail partners may also restrict our ability to market certain products, and not all of our suppliers may permit us to market through all of our retail partners' sites. Because some of our retail partners are competitors or potential competitors in the home goods market, some or all of our retail partners may in the future determine they no longer wish to do business with us or may decide to take other actions that could harm our business. We may also determine that we no longer want to do business with them. Because we do business with a small number of retail partners, if any one of our contracts with our retailer partners were to terminate, our revenue from our retail partners may decline and our relationships with our suppliers may be adversely affected.

          Because we rely on FedEx, UPS and the U.S. Postal Service to deliver most of the small parcel products we offer on our sites, we are subject to shipping delays or disruptions caused by inclement weather, natural disasters, labor activism, health epidemics or bioterrorism. In addition, because we rely on national and regional major transportation companies for the delivery of some of our other products, we are also subject to risks of breakage or other damage during delivery by any of these third parties. We also use and rely on other services from third parties, such as our telecommunications services, and those services may be subject to outages and interruptions that are not within our control. For example, failures by our telecommunications providers have in the past and may in the future interrupt our ability to provide phone support to our customers. If these products are not delivered in a timely fashion or are damaged during the delivery process, or if we are not able to provide adequate customer support, our customers could become dissatisfied and cease buying products through our sites, which would adversely affect our operating results.

        If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.

          We have been a private company for 12 years and, as such, we have not had the internal control and financial reporting requirements that are required of a publicly-traded company. We are required to comply with the requirements of The Sarbanes-Oxley Act of 2002, or the Sarbanes-

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Oxley Act, following the later of the date we are deemed to be an "accelerated filer" or a "large accelerated filer," each as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act, or the date we are no longer an "emerging growth company," as defined in the JOBS Act, which could be as early as our first fiscal year beginning after the effective date of this offering. The Sarbanes-Oxley Act requires that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation, document our controls and perform testing of our key control over financial reporting to allow management and our independent public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock would likely decline and we could be subject to lawsuits, sanctions or investigations by regulatory authorities, which would require additional financial and management resources.

          We continue to invest in more robust technology and in more resources in order to manage those reporting requirements. Implementing any appropriate changes to our internal controls may distract our officers and employees, result in substantial costs if we implement new processes or modify our existing processes and require significant time to complete. For example, we plan to transition from our current accounting system to a new reporting system that is expected to integrate better with our other existing systems. Any difficulties or delays in implementing the system could impact our ability to timely report our financial results. In addition, we currently rely on a manual process in some areas which increases our exposure to human error or intervention in reporting our financial results. For these reasons, we may encounter difficulties in the timely and accurate reporting of our financial results, which would impact our ability to provide our investors with information in a timely manner. As a result, our investors could lose confidence in our reported financial information, and our stock price could decline.

          In addition, any such changes do not guarantee that we will be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy could prevent us from accurately reporting our financial results.

        We may be unable to accurately forecast net revenue and appropriately plan our expenses in the future.

          Net revenue and operating results are difficult to forecast because they generally depend on the volume, timing and type of the orders we receive, all of which are uncertain. We base our expense levels and investment plans on our estimates of total net revenue and gross margins and have not historically relied on a formalized forecasting and budgeting process. In addition, we have been operating as five distinct brands for a short period of time, and we cannot be sure the same growth rates, trends and other key performance metrics are meaningful predictors of future growth. Our business is affected by general economic and business conditions in the United States, and we anticipate that it will be increasingly affected by conditions in international markets. In addition, we experience seasonal trends in our business, and our mix of product offerings is highly variable from day-to-day and quarter-to-quarter. This variability makes it difficult to predict sales and could result in significant fluctuations in our net revenue from period-to-period. A significant portion of our expenses is fixed, and as a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected shortfall in net revenue. Any failure to accurately predict net revenue or gross margins could cause our operating results to be lower than expected, which could materially adversely affect our financial condition and stock price.

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        Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from growing.

          In the future, we could be required to raise capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. We may sell Class A common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences and privileges senior to those of holders of our Class A common stock. Debt financing, if available, may involve restrictive covenants and could reduce our operational flexibility or profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.

        Our business may be adversely affected if we are unable to provide our customers a cost-effective shopping platform that is able to respond and adapt to rapid changes in technology.

          The number of people who access the Internet through devices other than personal computers, including mobile phones, smartphones, handheld computers such as notebooks and tablets, video game consoles, and television set-top devices, has increased dramatically in the past few years. The smaller screen size, functionality, and memory associated with some alternative devices may make the use of our sites and purchasing our products more difficult. The versions of our sites developed for these devices may not be compelling to consumers. In addition, it is time consuming and costly to keep pace with rapidly changing and continuously evolving technology. We launched our mobile applications for Joss & Main in 2012, and in 2014 we launched the Wayfair.com mobile application and the AllModern, Wayfair.co.uk and Wayfair.com.au mobile-optimized sites. In the first six months of 2014, 43.5% of Joss & Main orders delivered were placed from a mobile device, and 27.9% of our overall orders delivered were placed from a mobile device. However, we have only recently launched a mobile application for Wayfair.com and the mobile-optimized sites for AllModern, Wayfair.co.uk and Wayfair.com.au, and we cannot be certain that they will be successful.

          As new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in developing applications for alternative devices and platforms, and we may need to devote significant resources to the creation, support and maintenance of such applications. If we are unable to attract consumers to our websites through these devices or are slow to develop a version of our websites that is more compatible with alternative devices or a mobile application, we may fail to capture a significant share of consumers in the home goods market, which could adversely affect our business.

          Further, we continually upgrade existing technologies and business applications, and we may be required to implement new technologies or business applications in the future. The implementation of upgrades and changes requires significant investments. Our results of operations may be affected by the timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure. In the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our websites, our customer growth could be harmed and our business, financial condition and operating results may be materially adversely affected.

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        Significant merchandise returns could harm our business.

          We allow our customers to return products, subject to our return policy. If merchandise returns are significant, our business, prospects, financial condition and results of operations could be harmed. Further, we modify our policies relating to returns from time to time, which may result in customer dissatisfaction or an increase in the number of product returns. Many of our products are large and require special handling and delivery. From time to time our products are damaged in transit, which can increase return rates and harm our brand.

        Uncertainties in global economic conditions and their impact on consumer spending patterns, particularly in the home goods segment, could adversely impact our operating results.

          Consumers may view a substantial portion of the products we offer as discretionary items rather than necessities. As a result, our results of operations are sensitive to changes in macro-economic conditions that impact consumer spending, including discretionary spending. Some of the factors adversely affecting consumer spending include levels of unemployment, consumer debt levels, changes in net worth based on market changes and uncertainty, home foreclosures and changes in home values, fluctuating interest rates, credit availability, government actions, fluctuating fuel and other energy costs, fluctuating commodity prices and general uncertainty regarding the overall future economic environment. Consumer purchases of discretionary items, including our merchandise, generally decline during periods when disposable income is adversely affected or there is economic uncertainty. Adverse economic changes in any of the regions in which we sell our products could reduce consumer confidence and could negatively affect net revenue and have a material adverse effect on our operating results.

        Our business relies heavily on email and other messaging services, and any restrictions on the sending of emails or messages or an inability to timely deliver such communications could materially adversely affect our net revenue and business.

          Our business is highly dependent upon email and other messaging services for promoting our sites and products. Daily promotions offered through emails and other messages sent by us, or on our behalf by our vendors, generate a significant portion of our revenue. We provide daily emails and "push" communications to customers and other visitors informing them of what is available for purchase on our sites that day, and we believe these messages are an important part of our customer experience and help generate a substantial portion of our net revenue. If we are unable to successfully deliver emails or other messages to our subscribers, or if subscribers decline to open our emails or other messages, our net revenue and profitability would be materially adversely affected. Changes in how webmail applications organize and prioritize email may reduce the number of subscribers opening our emails. For example, Google Inc.'s Gmail service introduced a new feature that organizes incoming emails into categories (for example, primary, social and promotions). Such categorization or similar inbox organizational features may result in our emails being delivered in a less prominent location in a subscriber's inbox or viewed as "spam" by our subscribers and may reduce the likelihood of that subscriber opening our emails. Actions by third parties to block, impose restrictions on or charge for the delivery of emails or other messages could also adversely impact our business. From time to time, Internet service providers or other third parties may block bulk email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails or other messages to third parties. Changes in the laws or regulations that limit our ability to send such communications or impose additional requirements upon us in connection with sending such communications would also materially adversely impact our business. Our use of email and other messaging services to send communications about our sites or other matters may also result in legal claims against us, which

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may cause us increased expenses, and if successful might result in fines and orders with costly reporting and compliance obligations or might limit or prohibit our ability to send emails or other messages. We also rely on social networking messaging services to send communications and to encourage customers to send communications. Changes to the terms of these social networking services to limit promotional communications, any restrictions that would limit our ability or our customers' ability to send communications through their services, disruptions or downtime experienced by these social networking services or decline in the use of or engagement with social networking services by customers and potential customers could materially adversely affect our business, financial condition and operating results.

        We are subject to risks related to online payment methods.

          We accept payments using a variety of methods, including credit card, debit card, PayPal and gift cards. As we offer new payment options to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We are also subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. As our business changes, we may also be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay for compliance. If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card and debit card payments from consumers or facilitate other types of online payments. If any of these events were to occur, our business, financial condition and operating results could be materially adversely affected.

          We occasionally receive orders placed with fraudulent credit card data. We may suffer losses as a result of orders placed with fraudulent credit card data even if the associated financial institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions. If we are unable to detect or control credit card fraud, our liability for these transactions could harm our business, financial condition and results of operations.

        Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.

          We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future regulations and laws could impede the growth of the Internet, e-commerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, consumer protection, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the Internet as the vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or e-commerce. It is possible that general business regulations and laws, or those specifically governing the Internet or e-commerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We cannot be sure that our practices have complied, comply or will comply fully with all such laws and

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regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities or others. Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our sites by consumers and suppliers and may result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations. In addition, it is possible that governments of one or more countries may seek to censor content available on our sites or may even attempt to completely block access to our sites. Adverse legal or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole or in part, from operating in one or more countries, our ability to retain or increase our customer base may be adversely affected, and we may not be able to maintain or grow our net revenue and expand our business as anticipated.

        Failure to comply with federal, state and international laws and regulations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could adversely affect our business and our financial condition.

          A variety of federal, state and international laws and regulations govern the collection, use, retention, sharing and security of consumer data. Laws and regulations relating to privacy, data protection and consumer protection are evolving and subject to potentially differing interpretations. These requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements and obligations. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any federal, state or international privacy or consumer protection-related laws, regulations, industry self-regulatory principles, industry standards or codes of conduct, regulatory guidance, orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, proceedings or actions against us by governmental entities or others or other liabilities or require us to change our operations and/or cease using certain data sets. Any such claim, proceeding or action could hurt our reputation, brand and business, force us to incur significant expenses in defense of such proceedings, distract our management, increase our costs of doing business, result in a loss of customers and suppliers and may result in the imposition of monetary penalties. We may also be contractually required to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any laws, regulations or other legal obligations relating to privacy or consumer protection or any inadvertent or unauthorized use or disclosure of data that we store or handle as part of operating our business.

          Federal, state and international governmental authorities continue to evaluate the privacy implications inherent in the use of third-party "cookies" and other methods of online tracking for behavioral advertising and other purposes. U.S. and foreign governments have enacted, have considered or are considering legislation or regulations that could significantly restrict the ability of companies and individuals to engage in these activities, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools or the use of data gathered with such tools. Additionally, some providers of consumer devices and web browsers have implemented, or announced plans to implement, means to make it easier for Internet users to prevent the placement of cookies or to block other tracking technologies, which could if widely adopted result in the use of third-party cookies and other methods of online tracking becoming significantly less effective. The regulation of the use of these cookies and other current online tracking and advertising practices or a loss in our ability to make

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effective use of services that employ such technologies could increase our costs of operations and limit our ability to acquire new customers on cost-effective terms and consequently, materially adversely affect our business, financial condition and operating results.

          Foreign data protection, privacy and other laws and regulations are often more restrictive than those in the United States. The European Union, for example, traditionally has imposed stricter obligations under its laws and regulations relating to privacy, data protection and consumer protection than the United States. Individual EU member countries have discretion with respect to their interpretation and implementation of these laws and the penalties for breach and have their own regulators with differing attitudes towards enforcement, which results in varying privacy standards and enforcement risk from country to country. Legislation and regulation in the European Union and some EU member states require companies to give specific types of notice and in some cases seek consent from consumers before using their data for certain purposes, including some marketing activities. In the majority of EU member countries, consent must be obtained prior to setting cookies or other tracking technologies. Outside of the European Union, there are many countries with data protections laws, and new countries are adopting data protection legislation with increasing frequency. Many of these laws may require consent from consumers for the use of data for various purposes, including marketing, which may reduce our ability to market our products. There is no harmonized approach to these laws and regulations globally. Consequently, we increase our risk of non-compliance with applicable foreign data protection laws and regulations as we continue our international expansion. We may need to change and limit the way we use consumer information in operating our business and may have difficulty maintaining a single operating model that is compliant. Compliance with such laws and regulations will result in additional costs and may necessitate changes to our business practices and divergent operating models, which may adversely affect our business and financial condition.

          In addition, various federal, state and foreign legislative and regulatory bodies, or self-regulatory organizations, may expand current laws or regulations, enact new laws or regulations or issue revised rules or guidance regarding privacy, data protection and consumer protection. For example, the European Union is considering revisions to its current privacy laws. Any such changes may force us to incur substantial costs or require us to change our business practices. This could compromise our ability to pursue our growth strategy effectively and may adversely affect our ability to acquire customers or otherwise harm our business, financial condition and operating results.

        Our failure or the failure of third-party service providers to protect our sites, networks and systems against security breaches, or otherwise to protect our confidential information, could damage our reputation and brand and substantially harm our business and operating results.

          We collect, maintain, transmit and store data about our customers, suppliers and others, including credit card information and personally identifiable information, as well as other confidential and proprietary information. We also employ third-party service providers that store, process and transmit proprietary, personal and confidential information on our behalf. We rely on encryption and authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information, including credit card numbers. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology to protect transaction data or other confidential and sensitive information from being breached or compromised. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts to hack our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by our sites, networks and systems or that we or our third-party service providers otherwise maintain, including payment card systems which may subject us to fines or higher

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transaction fees or limit or terminate our access to certain payment methods. We and our service providers may not anticipate or prevent all types of attacks until after they have already been launched, and techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers. In addition, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by persons with whom we have commercial relationships.

          Breaches of our security measures or those of our third-party service providers or cyber security incidents could result in unauthorized access to our sites, networks and systems; unauthorized access to and misappropriation of consumer information, including consumers' personally identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware or other malware being served from our sites, networks or systems; deletion or modification of content or the display of unauthorized content on our sites; interruption, disruption or malfunction of operations; costs relating to breach remediation, deployment of additional personnel and protection technologies, response to governmental investigations and media inquiries and coverage; engagement of third party experts and consultants; litigation, regulatory action and other potential liabilities. If any of these breaches of security occur, our reputation and brand could be damaged, our business may suffer, we could be required to expend significant capital and other resources to alleviate problems caused by such breaches and we could be exposed to a risk of loss, litigation or regulatory action and possible liability. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants. In addition, any party who is able to illicitly obtain a subscriber's password could access the subscriber's transaction data or personal information. Any compromise or breach of our security measures, or those of our third-party service providers, could violate applicable privacy, data security and other laws, and cause significant legal and financial exposure, adverse publicity and a loss of confidence in our security measures, which could have an material adverse effect on our business, financial condition and operating results. Although we maintain privacy, data breach and network security liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. We may need to devote significant resources to protect against security breaches or to address problems caused by breaches, diverting resources from the growth and expansion of our business.

        Changes in tax treatment of companies engaged in e-commerce may adversely affect the commercial use of our sites and our financial results.

          Due to the global nature of the Internet, it is possible that various states or foreign countries might attempt to impose additional or new regulation on our business or levy additional or new sales, income or other taxes relating to our activities. Tax authorities at the international, federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in e-commerce. New or revised international, federal, state or local tax regulations may subject us or our customers to additional sales, income and other taxes. For example, the U.S. Senate has recently proposed legislation, the "Marketplace Fairness Act," that would require companies engaged in e-commerce to collect sales tax taxes on Internet revenue. The U.S. House of Representatives is currently considering such legislation. We cannot predict the effect of current attempts to impose sales, income or other taxes on e-commerce. New or revised taxes and, in particular, sales taxes, VAT and similar taxes would likely increase the cost of doing business online and decrease the attractiveness of selling products over the Internet. New taxes could also create significant increases in internal costs necessary to capture data and collect and remit taxes. Any of

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these events could have a material adverse effect on our business, financial condition and operating results.

        Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, commercial activity, VAT or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our operating results.

          We do not collect sales and use, commercial activity, VAT or similar taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable. Sales and use, VAT and similar tax laws and rates vary greatly by jurisdiction. Several states have presented us with tax assessments, alleging that we are required to collect and remit sales or other similar taxes. The aggregate amount of claims from these states is approximately $11.7 million. While we do not believe that we are obligated to collect and remit such taxes and intend to vigorously defend our position, we cannot be sure of the outcome of our discussions with these states. We also expect additional jurisdictions may make similar assessments in the future. As a result, we may be required to collect such taxes in additional jurisdictions in the future. Such tax assessments, penalties and interest or future requirements may materially adversely affect our business, financial condition and operating results.

        We may experience fluctuations in our tax obligations and effective tax rate, which could materially adversely affect our operating results.

          We are subject to taxes in the United States and numerous international jurisdictions. We record tax expense based on current tax payments and our estimates of future tax payments, which may include reserves for estimates of probable settlements of international and domestic tax audits. At any one time, multiple tax years may be subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are re-evaluated. Further, our effective tax rate in a given financial statement period may be materially impacted by changes in tax laws, changes in the mix and level of earnings by taxing jurisdiction, changes to existing accounting rules or regulations or by changes to our ownership or capital structures. Fluctuations in our tax obligations and effective tax rate could materially adversely affect our results of business, financial condition and operating results.

        We may expend substantial funds in connection with the tax liabilities that arise upon the settlement of restricted stock units in connection with this offering.

          We may expend substantial funds to satisfy minimum statutory tax withholding and remittance obligations when we settle a portion of our restricted stock units, or RSUs, that were granted prior to the date of this prospectus. Our RSUs vest upon the satisfaction of both a service condition and an event condition. The service condition for our RSUs is typically satisfied over a period of five years. The event condition will be satisfied on the closing of this offering. On the settlement dates for our RSUs, we plan to withhold shares and remit income taxes on behalf of the holders of our RSUs at the applicable minimum statutory rates based on the then current value of the underlying shares of our common stock as determined by us, which we refer to as a net settlement. We expect the applicable minimum statutory rates to be approximately 35% on average. Based on the number of our RSUs outstanding as of                           , 2014 for which the service condition has been satisfied on that date, and assuming (i) the event condition has been satisfied on that date and (ii) that the price of our common stock at the time of settlement is equal to $             , which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus,

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we estimate that this tax obligation on the initial settlement date will be approximately $             in the aggregate. The amount of this obligation could be higher or lower, depending on the price of shares of our common stock and the actual number of our RSUs outstanding for which the service condition has been satisfied on the initial settlement date for the RSUs. To net settle these RSUs on the initial settlement date, assuming a 35% tax withholding rate, we expect to deliver an aggregate of approximately                  shares of our Class B common stock to RSU holders. In connection with these net settlements, we will withhold and remit the tax liabilities on behalf of the RSU holders to the relevant tax authorities in cash.

          In order to fund the tax withholding and remittance obligations on behalf of our RSU holders, we expect to use a portion of our cash and cash equivalent balances. Alternatively, we may choose to borrow funds or use a combination of cash and borrowed funds to satisfy these obligations.

        We expect to pursue acquisitions, which could have a material adverse effect on our business, as could the integration of the businesses following acquisition.

          As part of our business strategy, we may acquire other companies or businesses. Since our inception, we have made two acquisitions, the remainder of the stake of our Australian joint venture in 2011 and DwellStudio in 2013. Acquisitions involve numerous risks, any of which could harm our business, including: difficulties in integrating the technologies, operations, existing contracts and personnel of an acquired company; difficulties in supporting and transitioning suppliers, if any, of an acquired company; diversion of financial and management resources from existing operations or alternative acquisition opportunities; failure to realize the anticipated benefits or synergies of a transaction; failure to identify all of the problems, liabilities or other shortcomings or challenges of an acquired company or technology, including issues related to intellectual property, regulatory compliance practices, revenue recognition or other accounting practices or employee or customer issues; risks of entering new markets in which we have limited or no experience; potential loss of key employees, customers and suppliers from either our current business or an acquired company's business; inability to generate sufficient net revenue to offset acquisition costs; additional costs or equity dilution associated with funding the acquisition; and possible write-offs or impairment charges relating to acquired businesses.

          We may also pursue acquisitions in businesses that are complementary to our business but otherwise new to our organization. Pursuing complementary business opportunities would require significant time and resources that may divert management's attention from other business activities. In addition, any complementary businesses we acquire may expose us to additional laws, regulations and risks, including the risk that we may incur ongoing operating expenses in such businesses in excess of revenue, which could harm our results of operations and financial condition. The financial profile of any such new businesses may be different than our current financial profile, which could also materially adversely affect our financial condition.

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        We rely on the performance of members of management and highly skilled personnel, and if we are unable to attract, develop, motivate and retain well-qualified employees, our business could be harmed.

          We believe our success has depended, and continues to depend, on the efforts and talents of Niraj Shah, one of our co-founders, co-chairman of the board of directors and our Chief Executive Officer, Steven Conine, one our co-founders, co-chairman of the board of directors and Chief Technology Officer, and other members of our management team. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees, particularly mid-level managers, engineers and merchandising and technology personnel. The market for such positions in the Boston area and other cities in which we operate is competitive. Qualified individuals are in high demand, and we may incur significant costs to attract them. In addition, the loss of any of our senior management or key employees or our inability to recruit and develop mid-level managers could materially adversely affect our ability to execute our business plan, and we may not be able to find adequate replacements. All of our officers and other U.S. employees are at-will employees, meaning that they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business, financial condition and operating results may be materially adversely affected.

        We may not be able to adequately protect our intellectual property rights.

          We regard our subscriber list, trademarks, domain names, copyrights, patent, trade dress, trade secrets, proprietary technology and similar intellectual property as critical to our success, and we rely on trademark, copyright and patent law, trade secret protection, agreements and other methods with our employees and others to protect our proprietary rights. We might not be able to obtain broad protection in the United States or internationally for all of our intellectual property, and we might not be able to obtain effective intellectual property protection in every country in which we sell products. The protection of our intellectual property rights may require the expenditure of significant financial, managerial and operational resources. Moreover, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights, and we may not be able to broadly enforce all of our trademarks. Any of our patents, marks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Our patent and trademark applications may never be granted. Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Even if issued, there can be no assurance that these patents will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or intellectual property rights.

          We might be required to spend significant resources to monitor and protect our intellectual property rights. We may not be able to discover or determine the extent of any infringement, misappropriation or other violation of our intellectual property rights and other proprietary rights. We may initiate claims or litigation against others for infringement, misappropriation or violation of our intellectual property rights or proprietary rights or to establish the validity of such rights. Despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights and other proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may materially adversely affect our business, financial condition and operating results.

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        We have been, and may again be, accused of infringing intellectual property rights of third parties.

          The e-commerce industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in protracted and expensive litigation for many companies. We are subject to claims and litigation by third parties that we infringe their intellectual property rights, and we expect additional claims and litigation with respect to infringement to occur in the future. The costs of supporting such litigation and disputes are considerable, and there can be no assurances that favorable outcomes will be obtained. As our business expands and the number of competitors in our market increases and overlaps occur, we expect that infringement claims may increase in number and significance. Any claims or proceedings against us, whether meritorious or not, could be time-consuming, result in considerable litigation costs, require significant amounts of management time or result in the diversion of significant operational resources, any of which could materially adversely affect our business, financial condition and operating results.

          Legal claims regarding intellectual property rights are subject to inherent uncertainties due to the oftentimes complex issues involved, and we cannot be certain that we will be successful in defending ourselves against such claims. In addition, some of our larger competitors have extensive portfolios of issued patents. Many potential litigants, including patent holding companies, have the ability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Furthermore, a successful claimant could secure a judgment that requires us to pay substantial damages or prevents us from conducting our business as we have historically done or may desire to do in the future. We might also be required to seek a license and pay royalties for the use of such intellectual property, which may not be available on commercially acceptable terms, or at all. Alternatively, we may be required to develop non-infringing technology or intellectual property, which could require significant effort and expense and may ultimately not be successful.

          We have received in the past, and we may receive in the future, communications alleging that certain items posted on or sold through our sites violate third-party copyrights, designs, marks and trade names or other intellectual property rights or other proprietary rights. Brand and content owners and other proprietary rights owners have actively asserted their purported rights against online companies, including Wayfair. In addition to litigation from rights owners, we may be subject to regulatory, civil or criminal proceedings and penalties if governmental authorities believe we have aided and abetted in the sale of counterfeit or infringing products.

          Such claims, whether or not meritorious, may result in the expenditure of significant financial, managerial and operational resources, injunctions against us or the payment of damages by us. We may need to obtain licenses from third parties who allege that we have violated their rights, but such licenses may not be available on terms acceptable to us, or at all. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims.

        The inability to acquire, use or maintain our marks and domain names for our sites could substantially harm our business and operating results.

          We currently are the registrant of marks for our brands in numerous jurisdictions and are the registrant of the Internet domain name for the websites of Wayfair.com and our other sites, as well as various related domain names. However, we have not registered our marks or domain names in all major international jurisdictions. Domain names generally are regulated by Internet regulatory bodies. If we do not have or cannot obtain on reasonable terms the ability to use our marks in a particular country, or to use or register our domain name, we could be forced either to incur significant additional expenses to market our products within that country, including the development of a new brand and the creation of new promotional materials and packaging, or to

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elect not to sell products in that country. Either result could materially adversely affect our business, financial condition and operating results.

          Furthermore, the regulations governing domain names and laws protecting marks and similar proprietary rights could change in ways that block or interfere with our ability to use relevant domains or our current brand. Also, we might not be able to prevent third parties from registering, using or retaining domain names that interfere with our consumer communications or infringe or otherwise decrease the value of our marks, domain names and other proprietary rights. Regulatory bodies also may establish additional generic or country-code top-level domains or may allow modifications of the requirements for registering, holding or using domain names. As a result, we might not be able to register, use or maintain the domain names that utilize the name Wayfair or our other brands in all of the countries in which we currently or intend to conduct business.

        Our use of open source software may pose particular risks to our proprietary software and systems.

          We use open source software in our software and systems and will use open source software in the future. The licenses applicable to open source software may require that the source code subject to the license be made available to the public and that any modifications or derivative works to certain open source software continue to be licensed under open source licenses. From time to time, we may face claims from third parties claiming infringement of their intellectual property rights, or demanding the release or license of the open source software or derivative works that we developed using such software (which could include our proprietary source code) or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to purchase a costly license, publicly release the affected portions of our source code, be limited in or cease using the implicated software unless and until we can re-engineer such software to avoid infringement or change the use of the implicated open source software. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties, indemnities or other contractual protections with respect to the software (for example, non-infringement or functionality). Our use of open source software may also present additional security risks because the source code for open source software is publicly available, which may make it easier for hackers and other third parties to determine how to breach our sites and systems that rely on open source software. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a material adverse effect on our business, financial condition and operating results.

Risks Related to this Offering and Ownership of our Class A Common Stock

        There has been no prior market for our Class A common stock. An active market may not develop or be sustainable, and investors may not be able to resell their shares at or above the initial public offering price.

          There has been no public market for our Class A common stock prior to this offering. The initial public offering price for our Class A common stock will be determined through negotiations between a representative of the underwriters and us and may vary from the market price of our Class A common stock following the completion of this offering. An active or liquid market in our Class A common stock may not develop upon completion of this offering or, if it does develop, it may not be sustainable. In the absence of an active trading market for our Class A common stock, you may not be able to resell those shares at or above the initial public offering price or at all. We cannot predict the prices at which our Class A common stock will trade.

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        Although we do not intend to rely on "controlled company" exemptions from certain corporate governance requirements under the New York Stock Exchange, or NYSE, rules, if we use these exemptions in the future, you will not have the same protections afforded to stockholders of companies that are subject to such requirements.

          After this offering, our co-founders will continue to control a majority of the voting power of our outstanding common stock. As a result, we will qualify as a "controlled company" within the meaning of the corporate governance standards of the NYSE. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including:

    the requirement that a majority of the board of directors consist of independent directors as defined under the listing rules of the NYSE;

    the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities;

    the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities; and

    the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

          To the extent we still qualify, we may choose to take advantage of any of these exemptions in the future. As a result, in the future, we may not have a majority of independent directors and we may not have independent director oversight of decisions regarding executive compensation and director nominations.

        The dual class structure of our common stock and the existing ownership of capital stock by our executive officers, directors and their affiliates have the effect of concentrating voting control with our co-founders, executive officers, directors and their affiliates for the foreseeable future, which will limit your ability to influence corporate matters.

          Our Class B common stock has ten votes per share, and our Class A common stock, which is the stock we are offering in this initial public offering, has one vote per share. Given the greater number of votes per share attributed to our Class B common stock, our existing stockholders, all of which hold shares of Class B common stock, will collectively beneficially own shares representing approximately       % of the voting power of our outstanding capital stock following the completion of this offering. Consequently, the holders of Class B common stock collectively will continue to be able to control a majority of the voting power even if their stock holdings represent as few as approximately       % of the outstanding number of shares of our common stock. Further, our co-founders will own shares representing approximately         % of the economic interest and          % of the voting power of our outstanding capital stock following this offering and, together with our other executive officers, directors and their affiliates, will own shares representing approximately         % of the economic interest and         % of the voting power of our outstanding capital stock following this offering. This concentrated control will limit your ability to influence corporate matters for the foreseeable future. For example, these stockholders will be able to control elections of directors, amendments of our restated certificate of incorporation or bylaws, increases to the number of shares available for issuance under our equity incentive plans or adoption of new equity incentive plans and approval of any merger or sale of assets for the foreseeable future. This control may materially adversely affect the market price of our Class A common stock. Additionally, the

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holders of our Class B common stock may cause us to make strategic decisions or pursue acquisitions that could involve risks to you or may not be aligned with your interests. The holders of our Class B common stock will also be entitled to a separate vote in the event we seek to amend our restated certificate of incorporation to increase or decrease the par value of a class of our common stock or in a manner that alters or changes the powers, preferences or special rights of the Class B common stock in a manner that affects its holders adversely.

          Future transfers by holders of Class B common stock will generally result in those shares converting on a 1:1 basis to Class A common stock, which will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long-term, which may include our executive officers and directors and their affiliates.

        Our stock price may be volatile or may decline regardless of our operating performance, resulting in substantial losses for investors purchasing shares in this offering.

          The market price of our Class A common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

    actual or anticipated fluctuations in our results of operations;

    the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

    failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates or ratings by any securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;

    announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, operating results or capital commitments;

    changes in operating performance and stock market valuations of other technology or retail companies generally, or those in our industry in particular;

    price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole;

    changes in our board of directors or management;

    sales of large blocks of our Class A common stock, including sales by our executive officers, directors and significant stockholders;

    lawsuits threatened or filed against us;

    changes in laws or regulations applicable to our business;

    the expiration of contractual lock-up agreements;

    changes in our capital structure, such as future issuances of debt or equity securities;

    short sales, hedging and other derivative transactions involving our capital stock;

    general economic conditions in the United States and abroad;

    other events or factors, including those resulting from war, incidents of terrorism or responses to these events; and

    the other factors described in the sections of the prospectus titled "Risk Factors" and "Special Note Regarding Forward-Looking Statements."

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          In addition, stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies, including e-commerce companies. Stock prices of many technology companies, including e-commerce companies, have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and materially adversely affect our business, financial condition and operating results.

        Substantial future sales of shares of our Class A common stock could cause the market price of our Class A common stock to decline.

          Sales of a substantial number of shares of our Class A common stock in the public market following the completion of this offering, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Class A common stock.

          All of our executive officers, directors, holders of substantially all of our outstanding capital stock and substantially all of our stock options and restricted stock units are subject to lock-up agreements that restrict their ability to transfer shares of our capital stock for 180 days from the date of this prospectus. Subject to certain exceptions, the lock-up agreements limit the number of shares of capital stock that may be sold immediately following this initial public offering. Subject to certain limitations, as of                          , 2014, approximately              shares (assuming the sale of             shares of Class A common stock by the selling stockholders) and             shares of Class A common stock issuable upon conversion of outstanding Class B common stock will become eligible for sale upon expiration of the 180-day lock-up period. Goldman, Sachs & Co. may, in its sole discretion, permit our stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

          In addition, as of                          , 2014, there were                  shares of Class B common stock subject to outstanding options. We intend to register all of the shares of Class A common stock issuable upon conversion of the shares of Class B common stock issuable upon exercise of outstanding options, and upon exercise of settlement of any options or other equity incentives we may grant in the future, for public resale under the Securities Act of 1933, as amended, or the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements, subject to the lock-up agreements described above. The shares of Class A common stock issuable upon conversion of these shares will become eligible for sale in the public market to the extent such options are exercised, subject to the lock-up agreements described above and compliance with applicable securities laws.

        If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

          The trading market for our Class A common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

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        We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways that may not yield a return.

          We currently intend to use the net proceeds to us from this offering primarily for general corporate purposes. We also expect to distribute approximately $          million of the net proceeds to our existing Series A preferred stockholders, including our co-founders and certain of our directors, executive officers and holders of more than 5% of our voting securities, upon conversion to common stock to satisfy the remaining portion of an accrued cash dividend and approximately $          million of the net proceeds to satisfy minimum statutory tax withholding and remittance obligations related to the settlement of outstanding RSUs upon the completion of this offering. We may also use a portion of the net proceeds from this offering for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any such acquisition or investment. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for purposes that do not increase the value of our business or increase the risks to you, which could cause the price of our stock to decline. Until net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

        We are an "emerging growth company," and we cannot be certain if the reduced disclosure requirements applicable to "emerging growth companies" will make our Class A common stock less attractive to investors.

          We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an "emerging growth company" for up to five years, although we will cease to be an "emerging growth company" upon the earliest of (1) the last day of the fiscal year following the fifth anniversary of this offering, (2) the last day of the first fiscal year in which our annual gross revenues are $1.0 billion or more, (3) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities and (4) the date on which we are deemed to be a "large accelerated filer" as defined in the Securities Exchange Act of 1934, or the Exchange Act. We cannot predict if investors will find our Class A common stock less attractive or our company less comparable to certain other public companies because we will rely on these exemptions.

        The requirements of being a public company may strain our resources, divert management's attention and affect our ability to attract and retain additional executive management and qualified board members.

          As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NYSE and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an "emerging growth company." The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our

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business and results of operations. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management's attention may be diverted from other business concerns, which could materially adversely affect our business and results of operations. We will need to hire additional employees or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

          In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and our business may be materially adversely affected.

          We also expect that being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

          As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and results of operations could be materially adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and materially adversely affect our business, financial condition and operating results.

        Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock.

          Provisions in our certificate of incorporation and bylaws, as will be amended and restated upon completion of this offering, may have the effect of delaying or preventing a change of control or changes in our management. Our restated certificate of incorporation and amended and restated bylaws include provisions that:

    permit the board of directors to establish the number of directors and fill any vacancies and newly created directorships;

    provide that directors may only be removed for cause;

    require super-majority voting to amend some provisions in our restated certificate of incorporation and amended and restated bylaws;

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    authorize the issuance of "blank check" preferred stock that our board of directors could use to implement a stockholder rights plan;

    eliminate the ability of our stockholders to call special meetings of stockholders;

    prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

    provide that the board of directors is expressly authorized to make, alter or repeal our bylaws;

    restrict the forum for certain litigation against us to Delaware;

    reflect the dual class structure of our common stock, as discussed above; and

    establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

          These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any holder of at least 15% of our capital stock for a period of three years following the date on which the stockholder became a 15% stockholder.

        Our restated certificate of incorporation will also provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

          Our restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our restated certificate of incorporation or our bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business and financial condition.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements. All statements other than statements of historical fact contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements.

          In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions described in the "Risk Factors" section and elsewhere in this prospectus. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.

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ORGANIZATIONAL STRUCTURE

Reorganization Transactions

          Prior to the completion of this offering, we intend to complete an internal restructuring, which we refer to in this prospectus as the Corporate Reorganization. Pursuant to the Corporate Reorganization, Wayfair LLC will become a wholly-owned subsidiary of Wayfair Inc., and the holders of equity interests in Wayfair LLC will become stockholders of Wayfair Inc.

          Wayfair Inc. was incorporated as a Delaware corporation on August 8, 2014. Wayfair Inc. has not engaged in any business or other activities except in connection with its formation and in preparation for this offering. The certificate of incorporation of Wayfair Inc. in effect immediately prior to the completion of the Corporate Reorganization authorizes common stock and three series of preferred stock—Series A-1 convertible preferred stock, Series A-2 convertible preferred stock and Series B convertible preferred stock.

          Prior to the Corporate Reorganization, Wayfair LLC is owned by (i) our co-founders, through SK Retail, Inc., which owns common units and preferred units, (ii) outside investors who currently own preferred units via single purpose entities taxable as corporations, which we refer to herein as corporate blockers, (iii) outside investors who directly own preferred units, and (iv) our employees and former employees, advisors and former advisors, managers and certain other individuals and entities who own common units or equity incentives to purchase or otherwise receive common units. We refer to the individuals and entities described in clauses (iii) and (iv) as our direct members. Our outside investors and direct members consist primarily of holders of more than 5% of our voting securities and entities affiliated with our directors.

          The sole purposes of SK Retail, Inc. prior to the Corporate Reorganization were to own equity interests in Wayfair LLC and to provide reimbursable management services to Wayfair LLC. Wayfair LLC reimbursed SK Retail for services provided, and these costs have been included in the consolidated financial statements of Wayfair LLC. The sole purpose of the corporate blockers prior to the Corporate Reorganization was to own equity interests in Wayfair LLC.

          In connection with the Corporate Reorganization and pursuant to a contribution and exchange agreement we executed on August 15, 2014 with all of the holders of equity interests in Wayfair LLC, the following contributions of interests and entities will be made to Wayfair Inc. by the current owners of Wayfair LLC:

    Our co-founders will contribute all of the outstanding stock of SK Retail, Inc. to Wayfair Inc. in exchange for an aggregate of 40,375,939 shares of common stock and 856,566 shares of Series A-2 convertible preferred stock of Wayfair Inc.;

    Our outside investors who own interests in Wayfair LLC through corporate blockers will contribute all of the outstanding stock of those corporate blockers to Wayfair Inc. in exchange for an aggregate of             shares of Series A-1,                   shares of Series A-2 and               shares of Series B convertible preferred stock of Wayfair Inc.;

    Our direct members who own preferred units of Wayfair LLC will contribute all of their outstanding preferred units to Wayfair Inc. in exchange for an aggregate of             shares of Series A-1,                   shares of Series A-2 and              shares of Series B convertible preferred stock of Wayfair Inc.; and

    Our direct members who own common units will contribute all of their outstanding common units to Wayfair Inc. in exchange for an aggregate of             shares of common stock of Wayfair Inc.

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          In addition, all outstanding incentive units of Wayfair LLC outstanding immediately prior to the Reorganization will automatically be converted into (i) options to purchase our Class B common stock, (ii) shares of our Class B common stock subject to vesting and repurchase provisions or (iii) restricted stock units for our Class B common stock.

          Following the contributions described above, and immediately prior to the completion of this offering, all outstanding shares of common stock of Wayfair Inc. will be reclassified into shares of Class B common stock, and all outstanding shares of convertible preferred stock of Wayfair Inc. will convert into shares of Class B common stock. The terms of the Class B common stock are described in the section titled "Description of Capital Stock."

          As a result of the Corporate Reorganization and this offering, including the filing of our restated certificate of incorporation, (i) Wayfair Inc., the issuer of Class A common stock in this offering, will be a holding company with no material assets other than 100% of the equity interests in Wayfair LLC held directly and through one or more wholly-owned corporate subsidiaries, and (ii) the capital stock of Wayfair Inc. will consist of three classes of stock: (i) Class A common stock, entitled to one vote per share on all matters submitted to a vote of stockholders; (ii) Class B common stock, entitled to ten votes per share on all matters submitted to a vote of stockholders and (iii) undesignated and unissued Preferred Stock. See the section titled "Description of Capital Stock" for additional information. All shares sold in this offering will be shares of Class A common stock.

Effect of the Corporate Reorganization and this Offering

          As a result of the transactions described above, immediately following this offering, and after giving effect to the sale of shares in this offering, including by the selling stockholders:

    our co-founders will collectively own             shares of Class B common stock, representing         % of the voting power and    % of the economic interest in Wayfair Inc.;

    our current outside investors, who are primarily holders of more than 5% of our voting securities and entities affiliated with our directors, will collectively own               shares of Class B common stock, representing         % of the voting power and    % of the economic interest in Wayfair Inc.;

    our public stockholders will collectively own             shares of Class A common stock, representing          % of the voting power and    % of the economic interest in Wayfair Inc.; and

    SK Retail, Inc. and the corporate blockers will be wholly-owned corporate subsidiaries of Wayfair Inc.

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          The diagram below depicts our organizational structure immediately following the offering:

GRAPHIC

          We expect to account for the Corporate Reorganization transactions in accordance with guidance provided for entities under common ownership because the holders of our current equity interests in Wayfair LLC are expected to hold the same ownership interests in Wayfair Inc. as they do in Wayfair LLC immediately prior to the Corporate Reorganization.

Holding Company Structure

          Following the Corporate Reorganization and this offering, Wayfair Inc. will hold, directly and indirectly, 100% of the membership interests in Wayfair LLC and will operate and control all of the business and affairs of Wayfair LLC. Wayfair Inc. will consolidate the financial results of Wayfair LLC.

          Wayfair Inc. and its corporate subsidiaries will incur U.S. federal, state and local income taxes on any net taxable income of Wayfair LLC. Net profits and net losses of Wayfair LLC will be allocated to Wayfair Inc. and its corporate subsidiaries. In addition, Wayfair LLC may make distributions to Wayfair Inc. and its corporate subsidiaries in order to remit taxes and certain other fees and expenses.

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USE OF PROCEEDS

          We estimate that the net proceeds to us from the sale of the Class A common stock that we are offering will be approximately $              million, assuming an initial public offering price of $             per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

          A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, which is the midpoint of the range listed on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $              million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discount and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares of Class A common stock from the selling stockholders in full, we will not receive any of the net proceeds. A             share increase (decrease) in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $              million, assuming no change in the assumed initial public offering price of $             per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us.

          We will not receive any of the net proceeds from the sale of shares of our Class A common stock in this offering by the selling stockholders.

          We expect to distribute approximately $24.3 million of the net proceeds, or approximately    %, to our existing Series A preferred stockholders upon conversion to common stock in connection with the completion of this offering to satisfy the remaining portion of an accrued cash dividend. Our co-founders and certain of our directors, executive officers and holders of more than 5% of our voting securities hold 85% of our outstanding shares of Series A preferred stock and, as a result of their ownership, will receive 85% of the dividend payment, or approximately $20.6 million. We also expect to distribute approximately $          million of the net proceeds to satisfy minimum statutory tax withholding and remittance obligations related to the settlement of outstanding restricted stock units upon the completion of this offering. We intend to use the remaining net proceeds to us from this offering for working capital and other general corporate purposes. We may also use a portion of the net proceeds from this offering for the acquisition of, or investment in, technologies, solutions or businesses that complement our business.

          Pending use of the proceeds as described above, we intend to invest the proceeds in short-term, interest-bearing, investment-grade securities.


DIVIDEND POLICY

          We do not expect to pay any dividends on our Class A common stock or Class B common stock in the foreseeable future. Any future determination to pay dividends will be at the sole discretion of our board of directors, subject to applicable laws. Our board of directors may take into account general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, our capital requirements, contractual, legal, tax and regulatory restrictions, and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us and such other factors as our board of directors may deem relevant.

          In the past we have made tax distributions to our existing stockholders to the extent we have had taxable net income attributable to our existing stockholders. Accordingly, we paid distributions to our stockholders in 2011 in the aggregate amount of approximately $6.2 million. In March 2014, we distributed a portion of an accrued cash dividend to our Series A preferred stockholders in the aggregate amount of $15.0 million as further described in the section titled "Certain Relationships and Related Party Transactions — Series A Distributions" on page 113. In addition, following the Corporate Reorganization and upon the completion of this offering, we intend to distribute the remaining portion of the cash dividend accrued as of the date of this offering to our existing Series A preferred stockholders, including our co-founders and certain of our directors, executive officers and holders of more than 5% of our voting securities. Please read the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources" on page 68 and the section titled "Certain Relationships and Related Party Transactions — Series A Distributions" on page 113 for additional information about our remaining dividend obligations.

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CAPITALIZATION

          The following table sets forth our cash, cash equivalents and short-term investments and capitalization as of June 30, 2014, as follows:

    on an actual basis;

    on a pro forma basis, giving effect to (i) the consummation of the proposed Corporate Reorganization described in the section titled "Organizational Structure," including a net adjustment of $0.3 million to accumulated (deficit)/retained earnings in connection with deferred income tax liabilities assumed to be recognized in connection with the Corporate Reorganization, all presented as if these events had occurred as of June 30, 2014, (ii) the reclassification of all outstanding shares of common stock and the automatic conversion of all outstanding shares of preferred stock into shares of Class B common stock immediately prior to the completion of this offering, (iii) an adjustment of $13.3 million to reduce the carrying value of the convertible redeemable preferred units to reflect conversion value assuming the security was converted on the balance sheet date, (iv) the distribution of accrued dividend amounts payable to certain holders of our Series A convertible redeemable preferred units upon conversion into shares of Class B common stock equal to the members' distribution payable balance on our consolidated financial statements as of the completion of this offering, which amount was $20.9 million as of June 30, 2014 and (v) gives effect to equity compensation expense of $40.3 million associated with the common option units, deferred units and restricted common units that have satisfied the service condition as of June 30, 2014.

    on a pro forma as adjusted basis, giving effect to the pro forma adjustments set forth above and (i) the receipt of $            million in proceeds from the sale and issuance by us of           shares of Class A common stock in this offering, based on the initial public offering price of $           per share, the midpoint of the range listed on the cover page of this prospectus, after deducting the estimated underwriting discount and estimated offering expenses payable by us, and (ii) the payment of approximately $            million in cash to satisfy minimum statutory tax withholding and remittance obligations in connection with the net settlement of deferred units outstanding under our 2010 Plan.

 
  As of June 30, 2014  
 
 
Actual
 
Pro Forma
 
Pro Forma as
Adjusted
 
 
  (in thousands, except unit/share and
per unit/share data)

 

Cash and cash equivalents

  $ 87,781   $ 66,885   $    
               
               

Series A convertible redeemable preferred units, no par value per unit: 21,551,801 units authorized, 21,551,801 units outstanding, actual; no units authorized, issued and outstanding, pro forma and pro forma as adjusted

  $ 235,486   $        

Series B convertible redeemable preferred units, no par value per unit: 5,995,133 units authorized, 5,995,133 units outstanding, actual; no units authorized, issued and outstanding, pro forma and pro forma as adjusted

    157,229            

Members' (deficit)/Stockholders' equity:

                   

Common units, no par value per unit: 81,365,954 units authorized, 43,784,060 units issued and outstanding, actual; no units authorized, issued or outstanding, pro forma and pro forma as adjusted

               

Preferred stock, $0.001 par value; no shares authorized, issued or outstanding, actual;             shares authorized, no shares issued or outstanding, pro forma or pro forma adjusted

               

Class A common stock, $0.001 par value; no shares authorized, issued or outstanding, actual or pro forma;             shares authorized,             shares issued and outstanding, pro forma as adjusted

               

Class B common stock, $0.001 par value; no shares authorized, issued or outstanding, actual;             shares authorized,             shares issued and outstanding, pro forma and pro forma as adjusted

        71        

Additional paid-in capital

        121,624        

Accumulated (deficit)/Retained earnings

    (277,134 )   (27,316 )      

Accumulated other comprehensive (loss) income

    (321 )   (321 )      
               

Total member's (deficit)/stockholders' equity

    (277,455 )   94,058        
               

Total capitalization

  $ 115,260   $ 94,058   $    
               
               

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          The foregoing table excludes:

    646,413 shares of Class B common stock issuable upon exercise of options to purchase common stock outstanding as of June 30, 2014 under our 2010 Plan, at a weighted-average exercise price of $2.98 per share;

    6,085,085 shares of Class B common stock issuable from restricted stock units outstanding as of June 30, 2014 under our 2010 Plan; and

                           shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our 2014 Plan, which will become effective prior to the completion of this offering.

          You should read this information in conjunction with our consolidated financial statements and the related notes appearing at the end of this prospectus and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and other financial information contained in this prospectus.

          Pursuant to our LLC Agreement, we are required to make tax distributions to our stockholders to the extent we have taxable net income attributable to our stockholders. Accordingly we paid distributions to our stockholders in 2011 in an aggregate amount of approximately $6.2 million. In March 2014, we also distributed a portion of an accrued cash dividend to our Series A preferred stockholders in the aggregate amount of $15.0 million as further described in the section titled "Certain Relationships and Related Party Transactions — Series A Distributions." In addition, following our Corporate Reorganization and upon the completion of this offering, we intend to distribute the remaining portion of the cash dividend accrued as of the date of this offering to our existing Series A preferred stockholders, including our co-founders certain of our directors, executive officers and holders of more than 5% of our voting securities. Please read the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" for additional information about our remaining dividend obligations.

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DILUTION

          If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our Class A common stock after this offering. Our pro forma net tangible book value as of                    was $              million, or $(             ) per share of our Class A common stock. Pro forma net tangible book value per share represents our total tangible assets reduced by the amount of our total liabilities, divided by the total number of shares of our Class A common stock outstanding after giving effect to (1) the Corporate Reorganization and (2) the reclassification of all outstanding shares of common stock and the automatic conversion of all outstanding shares of our preferred stock into shares of Class B common stock, which will occur immediately prior to the completion of this offering.

          After giving effect to the sale of             shares of Class A common stock that we are offering at an assumed initial public offering price of $             per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting the estimated underwriting discount and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of                    , 2014 would have been approximately $              million, or approximately $             per share. This amount represents an immediate increase in pro forma net tangible book value of $             per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $             per share to new investors purchasing shares of Class A common stock in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of Class A common stock. The following table illustrates this dilution:

Assumed initial public offering price per share

        $                

Historical net tangible book value per share as of                    , 2014

  $                      

Pro forma net tangible book value per share as of                    , 2014

  $                      

Increase in net tangible book value per share attributable to this offering

             

Pro forma as adjusted net tangible book value per share after this offering

        $                

Dilution in net tangible book value per share to new investors

        $                

          A $1.00 increase (decrease) in the assumed initial public offering price of $             per share, which is the midpoint of the range listed on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $             , and dilution in pro forma net tangible book value per share to new investors by approximately $             , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discount and estimated offering expenses payable by us.

          If the underwriters exercise their option to purchase additional shares of our Class A common stock from the selling stockholders in full in this offering, we will not receive any of the net proceeds and the pro forma as adjusted net tangible book value after the offering would be $             per share, the increase in pro forma net tangible book value per share to existing stockholders would be $             and the dilution per share to new investors would be $             per share, in each case assuming an initial public offering price of $             per share, which is the midpoint of the range listed on the cover page of this prospectus.

          The following table summarizes, on a pro forma basis as of                    , 2014, the differences between the number of shares purchased from us, the total consideration paid to us in cash and

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the average price per share that existing owners and new investors paid. The calculation below is based on an assumed initial public offering price of $             per share, which is the midpoint of the range listed on the cover page of this prospectus, before deducting the estimated underwriting discount and estimated offering expenses payable by us.

 
  Shares Purchased   Total Consideration    
 
 
 
Average Price
Per Share
 
 
 
Number
 
Percent
 
Amount
 
Percent
 

Existing stockholders

            % $                          % $                     

New investors

                               

Total

          100 %         100 %      

          The foregoing tables and calculations are based on the number of shares of our Class A common stock outstanding as of                    , 2014 after giving effect to (1) the Corporate Reorganization described in the section titled "Organizational Structure" and (2) the reclassification of all outstanding shares of common stock and the automatic conversion of all outstanding shares of our preferred stock into shares of Class B common stock upon the closing of this offering, and excludes:

    646,413 shares of Class B common stock issuable upon exercise of options to purchase common stock outstanding as of June 30, 2014 under our 2010 Plan, at a weighted-average exercise price of $2.98 per share;

    6,085,085 shares of Class B common stock issuable from restricted stock units outstanding as of June 30, 2014 under our 2010 Plan; and

                           shares of Class A common stock, subject to increase on an annual basis, reserved for future issuance under our 2014 Plan, which will become effective prior to the completion of this offering.

          To the extent any of these outstanding options are exercised or restricted stock units are converted into shares of Class B common stock, there will be further dilution to new investors. To the extent all of such outstanding options had been exercised and restricted stock units converted into shares of Class B common stock as of                    , 2014, the pro forma as adjusted net tangible book value per share after this offering would be $             , and total dilution per share to new investors would be $             .

          If the underwriters exercise their option to purchase additional shares of Class A common stock from the selling stockholders in full:

    the percentage of shares of Class B common stock held by existing stockholders will decrease to approximately          % of the total number of shares of capital stock outstanding after this offering; and

    the number of shares of Class A common stock held by new investors will increase to             , or approximately         % of the total number of shares of capital stock outstanding after this offering.

          The foregoing table and calculations do not reflect any sales by existing stockholders in this offering. Sales by the selling stockholders in this offering will reduce the number of shares held by existing stockholders to             shares, or         % of the total number of shares of our capital stock outstanding after this offering and will increase the number of shares of Class A common stock held by new investors to             shares, or         % of the total number of shares of our capital stock outstanding after this offering, assuming the number of shares offered by the selling stockholders, as set forth on the cover of this prospectus, remains the same. In addition, if the underwriters exercise their option to purchase additional shares from the selling stockholders in full, the number of shares of Class B common stock held by the existing stockholders after this offering would be reduced to             , or          % of the total number of shares of our capital stock outstanding after this offering, and the number of shares of Class A common stock held by new investors would increase to              , or         %, of the total number of shares of our capital stock outstanding after this offering.

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SELECTED CONSOLIDATED FINANCIAL DATA

          You should read the following selected consolidated financial data below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, related notes and other financial information included in this prospectus. The following consolidated statements of operations data for the six months ended June 30, 2013 and 2014 and the consolidated balance sheet data as of June 30, 2014 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The following consolidated statements of operations data for the years ended December 31, 2012 and 2013 and the consolidated balance sheet data as of December 31, 2012 and 2013 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The following consolidated statements of operations data for the year ended December 31, 2011 and the consolidated balance sheet data as of December 31, 2011 are derived from our unaudited consolidated financial statements which are not included elsewhere in this prospectus. Historical results are not necessarily indicative of the results to be expected in the future.

 
  Years ended December 31,   Six months
ended June 30,
 
 
 
2011
 
2012
 
2013
 
2013
 
2014
 
 
  (in thousands, except share and per share data)
 

Consolidated Statements of Operations:

                               

Net revenue

  $ 517,336   $ 601,028   $ 915,843   $ 383,208   $ 574,144  

Cost of goods sold

    385,824     455,879     691,602     288,337     440,483  
                       

Gross profit

    131,512     145,149     224,241     94,871     133,661  

Operating expenses:

   
 
   
 
   
 
   
 
   
 
 

Sales and marketing

    106,794     113,370     177,475     72,714     138,228  

General and administrative

    36,772     52,961     62,246     30,014     46,355  

Amortization of acquired intangible assets

        212     539     106     499  
                       

Total operating expenses

    143,566     166,543     240,260     102,834     185,082  
                       

Loss from operations

    (12,054 )   (21,394 )   (16,019 )   (7,963 )   (51,421 )

Interest income, net

    157     234     245     124     133  

Gain on joint venture acquisition

    1,425                  

Other (expense) income, net

    (675 )   155     294     (504 )   (96 )
                       

Loss before income taxes

    (11,147 )   (21,005 )   (15,480 )   (8,343 )   (51,384 )

Provision for income taxes

    (22 )   (50 )   (46 )   5     (17 )
                       

Net loss

  $ (11,169 ) $ (21,055 ) $ (15,526 ) $ (8,338 ) $ (51,401 )

Accretion of convertible redeemable preferred units

    (9,337 )   (12,154 )   (25,388 )   (15,948 )   (11,755 )
                       

Net loss attributable to common unit holders

    (20,506 )   (33,209 )   (40,914 )   (24,286 )   (63,156 )

Net loss attributable to common unit holders per unit — basic and diluted

 
$

(0.50

)

$

(0.80

)

$

(0.99

)

$

(0.59

)

$

(1.55

)
                       
                       

Weighted average number of common units outstanding used in computing per unit amounts — basic and diluted

    41,271,992     41,271,992     41,331,546     41,271,992     40,828,976  
                       
                       

Pro forma net loss per share — basic and diluted (unaudited)

              $           $    
                             
                             

Pro forma weighted average number of common shares outstanding (unaudited)(1)

                               
                             
                             

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  December 31,    
 
 
 
June 30,
2014
 
 
 
2011
 
2012
 
2013
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                         

Cash and cash equivalents

  $ 52,027   $ 77,861   $ 65,289   $ 87,781  

Working capital

    32,795     42,031     18,118     68,706  

Total assets

    118,866     163,577     196,300     277,018  

Deferred revenue

    9,006     12,282     13,397     18,033  

Convertible redeemable preferred units

    167,480     215,798     241,186     392,715  

Total members' deficit

  $ (117,736 ) $ (150,791 ) $ (190,839 ) $ (277,455 )

(1)
The pro forma weighted average number of shares of common stock outstanding gives effect to the automatic conversion of all of our outstanding preferred stock into common stock upon the closing of this offering.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          You should read the following discussion and analysis of our financial condition and results of operations together with the "Selected Consolidated Financial Data" section of this prospectus and our consolidated financial statements and related notes appearing elsewhere in this prospectus. Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under the "Risk Factors" and "Special Note Regarding Forward-Looking Statements" sections and elsewhere in this prospectus, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

          We are transforming the way people shop for their homes. Through our e-commerce business model, we offer visually inspiring browsing, compelling merchandising, easy product discovery and attractive prices for over seven million products from over 7,000 suppliers across five distinct brands — Wayfair.com, Joss & Main, AllModern, DwellStudio and Birch Lane. Our typical Wayfair customer is a 35 to 65 year old woman with an annual household income of $60,000 to $175,000, who we consider to be a mass market consumer and who we believe is underserved by traditional brick and mortar and other online retailers of home goods. Because each of our customers has a different taste, style, purchasing goal and budget when shopping for her home, we have built one of the largest online selections of furniture, home furnishings, décor and goods. We are able to offer this vast selection of products while holding minimal inventory because we typically ship products directly from our suppliers to our customers. This supplier direct fulfillment network is a key component of our custom-built and seamlessly integrated technology and operational platform, which also includes extensive supplier integrations, a proprietary transportation delivery network and superior customer service.

          We founded our company in May 2002 and have since delivered over 11.8 million orders. From 2002 through 2011, the company was bootstrapped by our co-founders and operated as hundreds of niche websites, such as bedroomfurniture.com and allbarstools.com. In 2006, we launched AllModern. From 2003 to 2011, we grew our net revenue organically from $7.7 million to $517.3 million, representing a 69.2% CAGR. In late 2011, we made the strategic decision to close and permanently redirect over 240 of our niche websites into Wayfair.com to create a one-stop shop for furniture, home furnishings, décor and goods and to build brand awareness, drive customer loyalty and increase repeat purchasing. We also changed our name from CSN Stores LLC to Wayfair LLC. Additionally, we expanded our multi-brand strategy beyond our then existing brands — Wayfair.com and AllModern — by launching Joss & Main. In 2013, we acquired DwellStudio, and in 2014, we launched Birch Lane. We plan to continue expanding our existing brand portfolio and may opportunistically launch new brands. When launching new brands, we expect to leverage our experiences, insights, customer data, merchandising expertise, technology platform, operational platform and supplier base to create desired brands for our customers with minimal upfront capital. We may also continue to expand our business through opportunistic acquisitions that allow us to enhance our customer offering, build our multi-brand portfolio, enter new geographies or enhance our operational infrastructure.

          Our strong customer loyalty and deep supplier relationships have helped us grow our Direct Retail sales, which we define as sales generated primarily through the sites of our five brands. In 2013 and the six months ended June 30, 2014, we generated Direct Retail net revenue of $673.4 million and $469.5 million, respectively, an increase of 73.0% and 75.0%, respectively, over our Direct Retail net revenue of $389.3 million and $268.4 million in 2012 and the six months ended

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June 30, 2013, respectively. In 2013, we delivered 3.3 million orders for 2.1 million Direct Retail active customers, representing increases of 85.2% and 61.0%, respectively, over 2012. In the six months ended June 30, 2014, we delivered 2.2 million orders representing an increase of 76.6% over the six months ended June 30, 2013. In the six months ended June 30, 2014, we had 2.6 million Direct Retail active customers representing an increase of 75.0% over the six months ended June 30, 2013.

          We have built extensive supplier integrations, management tools and processes that allow us to efficiently onboard and manage suppliers of any size, type and sophistication level. We continue to seek new suppliers with compelling products to add to our selection of home goods. We offer fast and reliable delivery to our customers via our proprietary transportation delivery network for certain large parcels or FedEx, UPS, the U.S. Postal Service and other carriers for smaller parcels and we leverage our scale to reduce shipping costs. In the first six months of 2014, we shipped orders within North America in an average of 2.4 days, despite different handling requirements and complexities for large and small parcel items.

          We plan to grow our customer base by attracting more unique visitors to our sites through two main strategies — increasing brand awareness and expanding direct online marketing — and then converting those visitors to active customers. Our online efforts are focused on building brand awareness to drive visitor traffic via direct navigation, search engine optimization and email marketing campaigns. In addition, we have made significant investments to improve the consumer experience on our sites, such as creating highly engaging visual imagery and merchandising, as well as easy-to-use navigation tools and personalization features that enable better product discovery. We plan to continue investing in our infrastructure, including enhancing our merchandising, data, analytics, and technology platform, as well as developing additional logistics and transportation solutions, self-service tools for our suppliers, fulfillment offerings and enhancing our development, testing and deployment systems.

          Mobile is an increasingly important part of our business, especially for Joss & Main. We have invested in mobile technology to optimize the shopping experience across our sites for use on the majority of mobile devices. We launched mobile applications for Joss & Main in 2012 and Wayfair.com in 2014. In the first six months of 2014, 43.5% of Joss & Main orders delivered and 27.9% of all Direct Retail orders delivered were placed from a mobile device, up from 35.8% and 21.3%, respectively, in the first six months of 2013.

          Until late 2012, we were primarily focused on growing our U.S. business. In 2012, we began laying the groundwork for our international business by building our international infrastructure, developing deeper country-specific knowledge, building international supplier networks and establishing our brand presence in select international regions. We currently deliver products to customers in a number of countries, including the United States, the United Kingdom, Canada, Australia, Germany, Austria, Ireland and New Zealand. We intend to expand in these countries, especially Joss & Main, which we launched in the United Kingdom in 2014. In 2013 and the six months ended June 30, 2014, we generated net revenue outside of North America of $41.5 million and $25.2 million, or 4.5% and 4.4% of our total net revenue, respectively.

          In 2013 and the six months ended June 30, 2014, we generated net revenue of $915.8 million and $574.1 million, respectively, up 52.4% and 49.8% over 2012 and the six months ended June 30, 2013, respectively. Our net revenue in 2013 and the six months ended June 30, 2014 included $673.4 million and $469.5 million, respectively, from Direct Retail and $242.4 million and $104.6, respectively, from Other, which we define as net revenue generated primarily online through third parties, which we refer to as our retail partners and net revenue from third-party advertisers. In 2013, we generated a net loss of $15.5 million and Adjusted EBITDA of $(2.9) million, improvements of $5.5 million and $9.1 million, respectively, over 2012. In the six months ended

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June 30, 2014, we generated a net loss of $51.4 million and Adjusted EBITDA of $(37.0) million, increases of $43.1 million and $34.9 million, respectively, over the six months ended June 30, 2013. Our net loss and Adjusted EBITDA results were driven primarily by our increased investment in advertising in 2012, 2013, and the six months ended June 30, 2014. See "Key Financial and Operating Metrics" below for further discussion of Adjusted EBITDA, our use of this measure, the limitations of this measure as an analytical tool and the reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

Key Financial and Operating Metrics

          We measure our business using both financial and operating metrics. Our net revenue, Adjusted EBITDA and free cash flow metrics are measured on a consolidated basis. All other key financial and operating metrics are derived and reported from our Direct Retail sales, which includes sales generated primarily through the sites of our five distinct brands. These metrics do not include net revenue derived from the sites operated by our retail partners. We do not have access to certain customer level information on net revenue derived through our retail partners and therefore cannot measure or disclose it.

          We use the following metrics to assess the near-term and longer-term performance of our overall business.

 
  Years ended
December 31,
  Six months
ended June 30,
  % Change
December 31,
  % Change
June 30,
 
 
 
2012
 
2013
 
2013
 
2014
 
2012 to 2013
 
2013 to 2014
 
 
  (in thousands, except Average Order Value
and LTM Net Revenue Per Active
Customer)

   
   
 

Consolidated Financial Metrics

                                     

Net Revenue

  $ 601,028   $ 915,843   $ 383,208   $ 574,144     52.4 %   49.8 %

Adjusted EBITDA

  $ (12,059 ) $ (2,928 ) $ (2,100 ) $ (37,002 )        

Free Cash Flow

  $ (11,035 ) $ 18,643   $ (13,275 ) $ (70,250 )        

Direct Retail Financial and Operating Metrics

                                     

Direct Retail Net Revenue

  $ 389,290   $ 673,446   $ 268,366   $ 469,534     73.0 %   75.0 %

Active Customers

    1,299     2,092     1,506     2,635     61.0 %   75.0 %

LTM Net Revenue Per Active Customer

  $ 300   $ 322   $ 313   $ 332     7.3 %   6.1 %

Orders Delivered

    1,789     3,314     1,258     2,222     85.2 %   76.6 %

Average Order Value

  $ 218   $ 204   $ 213   $ 211     (6.4 )%   (0.9 )%

Non-GAAP Financial Measures

    Adjusted EBITDA

          To provide investors with additional information regarding our financial results, we have disclosed here and elsewhere in this prospectus Adjusted EBITDA, a non-GAAP financial measure that we calculate as earnings (loss) before depreciation and amortization, equity-based compensation, interest and other income and expense and taxes. We have provided a reconciliation below of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

          We have included Adjusted EBITDA in this prospectus because it is a key measure used by our management and board of managers to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of managers.

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          Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

    Adjusted EBITDA does not reflect the compensation charge associated with a tender offer we completed in April 2014 as described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources," or our 2014 Tender Offer;

    Adjusted EBITDA does not reflect changes in our working capital;

    Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and

    Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

          Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net (loss) income and our other GAAP results.

          The following table reflects the reconciliation of net loss to Adjusted EBITDA for each of the periods indicated:

 
  Years ended
December 31,
  Six months ended
June 30,
 
 
 
2012
 
2013
 
2013
 
2014
 
 
  (in thousands)
 

Reconciliation of Adjusted EBITDA

                         

Net loss

  $ (21,055 ) $ (15,526 ) $ (8,338 ) $ (51,401 )

Depreciation and amortization

    9,335     13,091     5,863     8,891  

Equity-based compensation

                5,528  

Interest income, net

    (234 )   (245 )   (124 )   (133 )

Other (expense) income, net

    (155 )   (294 )   504     96  

Taxes

    50     46     (5 )   17  
                   

Adjusted EBITDA

  $ (12,059 ) $ (2,928 ) $ (2,100 ) $ (37,002 )
                   
                   

    Free Cash Flow

          To provide investors with additional information regarding our financial results, we have also disclosed here and elsewhere in this prospectus free cash flow, a non-GAAP financial measure that we calculate as net cash (used in) provided by operating activities less net cash used to purchase property and equipment including leasehold improvements and site and software development costs. We have provided a reconciliation below of free cash flow to net cash (used in) provided by operating activities, the most directly comparable GAAP financial measure.

          We have included free cash flow in this prospectus because it is an important indicator of our business performance as it measures the amount of cash we generate. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management.

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          Free cash flow has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. There are limitations to using non-GAAP financial measures, including that other companies, including companies in our industry, may calculate free cash flow differently. Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash (used in) provided by operating activities, capital expenditures and our other GAAP results.

          The following table presents a reconciliation of free cash flow to net cash provided by operating activities for each of the periods indicated:

 
  Years ended
December 31,
  Six months ended
June 30,
 
 
 
2012
 
2013
 
2013
 
2014
 
 
  (in thousands)
 

Net cash provided by operating activities, net of acquisition

  $ 3,945   $ 34,413   $ (5,907 ) $ (39,771 )

Purchase of property, equipment, and leasehold improvements

    (8,031 )   (6,739 )   (3,301 )   (24,331 )

Site and software development costs

    (6,949 )   (9,040 )   (4,067 )   (6,148 )
                   

Free cash flow

  $ (11,035 ) $ 18,634   $ (13,275 ) $ (70,250 )
                   
                   

Key Operating Metrics (Direct Retail)

    Active Customers

          As of the last date of each reported period, we determine our number of active customers by counting the total number of individual customers who have purchased at least once directly from our sites during the preceding twelve-month period. The change in active customers in a reported period captures both the inflow of new customers as well as the outflow of existing customers who have not made a purchase in the last twelve months. We view the number of active customers as a key indicator of our growth.

    LTM Net Revenue Per Active Customer

          We define LTM net revenue per active customer as our total net revenue derived from Direct Retail sales in the last twelve months divided by our total number of active customers for the same preceding twelve-month period. We view LTM net revenue per active customer as a key indicator of our customers' purchasing patterns, including their initial and repeat purchase behavior.

    Orders Delivered

          We define orders delivered as the total Direct Retail orders delivered in any period, inclusive of orders that may eventually be returned. As we ship a large volume of packages through multiple carriers, actual delivery dates may not always be available, and as such we estimate delivery dates based on historical data. We recognize net revenue when an order is delivered and therefore orders delivered, together with average order value, is an indicator of the net revenue we expect to recognize in a given period. We view orders delivered as a key indicator of our growth.

    Average Order Value

          We define average order value as total Direct Retail net revenue in a given period divided by the orders delivered in that period. We view average order value as a key indicator of the mix of products on our sites, the mix of offers and promotions and the purchasing behavior of our customers.

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Factors Affecting our Performance

          We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section titled "Risk Factors" on page 14.

    Growth in Brand Awareness and Visitors to our Sites

          We intend to continue investing in our brand awareness strategy and direct online marketing efforts. In late 2011, we made a strategic decision to close and permanently redirect over 240 of our niche websites into Wayfair.com. Since late 2011, we have marketed our brands, in particular Wayfair.com, through TV advertising, display advertising, paid search advertising, social media advertising and direct mail, catalog and print advertising. Since the launch of Wayfair.com and our rebranding effort in late 2011, our aided brand awareness has increased to 45% in June 2014, according to Hanover Research, a market research firm. Failure to cost-effectively attract new visitors to our sites and convert them into customers would adversely affect our net revenue growth and operating results.

    Growth in Customer Acquisition and Customer Retention

          Our goal is to convert visitors into active customers and then encourage repeat purchases. Orders from repeat customers increased from 37.4% of orders delivered in 2012 to 47.2% of orders delivered in 2013, increasing our operating leverage since it costs more to acquire a customer than to retain one. Our continued investments in infrastructure, including enhancing our merchandising, data, analytics, and technology platform, allow us to deliver increasingly tailored and personalized shopping experiences for customers across our sites. We believe our focus on a personalized shopping experience drives sales from new customers as well as repeat customers.

          To illustrate how the costs of acquiring customers and their contribution to our operating results have trended over time, we analyzed metrics across two separate periods. We analyzed the amount we spent on advertising to attract new consumers to our sites in North America in the third quarters of 2011 and 2013. Once the consumers provide their email addresses in any given quarter, we track the date each consumer becomes a customer by making a first purchase on one of our sites, as well as each customer's repeat purchasing behavior and the break-even date on our advertising spend.

          We chose the third quarter of 2011 and the third quarter of 2013 to illustrate the evolution of our advertising and customer acquisition strategies following our strategic decision in 2011 to close and permanently redirect over 240 of our niche websites into Wayfair.com. Prior to that strategic shift, we targeted a shorter payback period because we were focused on acquiring customers with immediate purchasing needs. Following our strategic shift and the introduction of our flash sales site Joss & Main, we began to focus on acquiring customers with a higher lifetime value, greater

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brand loyalty and potential for long-term repeat purchasing, but with a longer payback period. Beginning with the third quarter of 2013, our results reflect the ongoing transition to this strategy.

 
  Third Quarter
of 2011(1)
  Third Quarter
of 2013(1)
 

Advertising spend (in thousands)

  $8,797   $20,966  

Customers activated(2)

  244,778   451,750  

Acquisition cost per customer

  $36   $46  

Net revenue per customer

  $265   $311  

Repeat rate(3)

  12.5%   24.0%  

Break-even date(4)

  September 15, 2011   October 30, 2013  

(1)
This analysis is based on orders shipped.

(2)
Customers activated are consumers who provided their email address during the quarter and made their first purchase on one of our sites during the quarter or the subsequent 180 days.

(3)
For this analysis, repeat rate reflects the number of customers in this analysis who have purchased from the same site at least twice during the quarter and the subsequent 180 days.

(4)
The break-even date is the date that the contribution generated by our customers equals the amount we spent on advertising within the respective quarter. For the purpose of this analysis, we use an approximation for contribution margin of 20% of net revenue, which is consistent with our historical performance. Contribution margin is a non-GAAP financial measure that we define as gross profit less customer service costs and merchant processing fees.

    Revenue Growth Through Mobile Platform

          Mobile is an increasingly important part of our business, especially for Joss & Main. We launched our mobile applications for Joss & Main in 2012 and Wayfair.com in 2014. In the first six months of 2014, 43.5% of Joss & Main orders delivered and 27.9% of all Direct Retail orders delivered were placed from a mobile device, up from 35.8% and 21.3%, respectively, in the first six months of 2013. Due to the relative newness of smartphones, tablets, and mobile shopping in general, we do not know if this increase in mobile use will continue.

    Investment In Growth

          We have aggressively invested in the growth of our business and this investment will continue. We anticipate that our operating expenses will increase substantially as we continue to increase our advertising spending, hire additional personnel primarily in merchandising, technology, operations, customer service and general and administrative functions and continue to develop features on our sites. In 2013, we signed a lease to increase our office space, and in 2014 we further increased the office space to accommodate the anticipated growth of our headcount in our corporate headquarters. These investments are expected to increase our losses near term and yield returns in the long term, but there is no guarantee that we will be able to realize the return on our investments.

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Components of Our Results of Operations

    Net Revenue

          Net revenue consists primarily of sales of product from our sites and through the sites of our online retail partners and includes related shipping fees. We deduct cash discounts, allowances, rewards and estimated returns from gross revenue to determine net revenue. We recognize product revenue upon delivery to our customers. Net revenue is primarily driven by growth of new and active customers and the frequency with which customers purchase. The products offered on our sites are primarily fulfilled with product we ship to our customers directly from our suppliers and, to a lesser extent, from our fulfillment centers.

          We also generate net revenue through third-party advertisers that pay us based on the number of advertisement related clicks, actions, or impressions for advertisements placed on our sites. Net revenue earned under these arrangements is included in net revenue and is recognized in the period in which the click, action or impression occurs. This revenue has not been material to date.

          We maintain a membership rewards program that allows enrolled customers to earn points which can be redeemed on future purchases. We defer the portion of our revenue associated with rewards which are expected to be redeemed prior to its expiration.

    Cost of Goods Sold

          Cost of goods sold consists of the cost of product sold to customers, shipping and handling costs and shipping supplies and fulfillment costs. Fulfillment costs include costs incurred in operating and staffing the fulfillment centers, such as costs attributed to receiving, inspecting, picking, packaging and preparing customer orders for shipment. Cost of goods sold also includes direct and indirect labor costs for fulfillment center oversight, including payroll and related benefit costs. The increase in cost of goods sold is primarily driven by growth in orders delivered, the mix of the product available for sale on our sites and transportation costs related to delivering orders to our customers.

          We earn rebates on our incentive programs with our suppliers. These rebates are earned upon shipment of goods. Amounts due from suppliers as a result of these rebate programs are included as a receivable and are reflected as a reduction of cost of goods sold on the consolidated statements of operations. We expect cost of goods sold expenses to remain relatively stable as a percentage of net revenue.

    Sales and Marketing

          Sales and marketing expenses consist primarily of direct response performance marketing costs, such as television advertising, display advertising, paid search advertising, social media advertising, search engine optimization, comparison shopping engine advertising, direct mail, catalog and print advertising. Sales and marketing expenses also include labor-related costs for our employees involved in sales and marketing and customer service activities, merchant processing fees and partner advertising fees. Sales and marketing expenses are primarily driven by investments to grow and retain our customer base. We expect marketing expenses to continue to increase but decrease as a percentage of net revenue over time.

    General and Administrative

          General and administrative expenses consist primarily of labor-related costs for administrative, engineering, merchandising, human resources, finance and accounting personnel, professional service fees including audit and legal fees, insurance and other corporate expenses, including

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depreciation and rent. We anticipate that we will incur additional personnel expenses, professional service fees, including audit and legal, investor relations, costs of compliance with securities laws and regulations, and higher director and officer insurance costs related to operating as a public company. In addition, as we continue to grow as a company, we expect that our general and administrative expenses will continue to increase but decrease as a percentage of net revenue over time.

    Amortization of Acquired Intangible Assets

          We have recorded identifiable intangible assets in conjunction with our acquisitions and are amortizing those assets over their estimated useful lives. We perform impairment testing of goodwill and intangibles with definite lives annually and whenever events or circumstances indicate that impairment may have occurred.

    Interest (Expense) Income, Net

          Interest (expense) income, net consists primarily of interest earned on cash, cash equivalents and short-term investments held by us.

    Other (Expense) Income, Net

          Other (expense) income, net consist primarily foreign currency gains (losses).

Results of Consolidated Operations

          The following tables set forth our results of operations for the periods presented and express the relationship of certain line items as a percentage of net revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.

 
  Years ended
December 31,
  Six months ended
June 30,
 
 
  2012   2013   2013   2014  
 
  (in thousands)
 

Consolidated Statements of Operations:

                         

Net revenue

  $ 601,028   $ 915,843   $ $383,208   $ $574,144  

Cost of goods sold

    455,879     691,602     288,337     440,483  
                   

Gross profit

    145,149     224,241     94,871     133,661  

Operating expenses:

   
 
   
 
   
 
   
 
 

Sales and marketing

    113,370     177,475     72,714     138,228  

General and administrative

    52,961     62,246     30,014     46,355  

Amortization of acquired intangible assets

    212     539     106     499  
                   

Total operating expenses

    166,543     240,260     102,834     185,082  
                   

Loss from operations

    (21,394 )   (16,019 )   (7,963 )   (51,421 )

Interest income, net

    234     245     124     133  

Other (expense) income, net

    155     294     (504 )   (96 )
                   

Loss before income taxes

    (21,005 )   (15,480 )   (8,343 )   (51,384 )

Provision for income taxes

    (50 )   (46 )   5     (17 )
                   

Net loss

  $ (21,055 ) $ (15,526 ) $ (8,338 ) $ (51,401 )
                   
                   

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  Years ended
December 31,
  Six months
ended
June 30,
 
 
 
2012
 
2013
 
2013
 
2014
 

Consolidated Statements of Operations:

                         

Net revenue

    100.0 %   100.0 %   100.0 %   100.0 %

Cost of goods sold

    75.8     75.5     75.2 %   76.7 %
                   

Gross profit

    24.2     24.5     24.8 %   23.3 %

Operating expenses:

                         

Sales and marketing

    18.9     19.4     19.0 %   24.1 %

General and administrative

    8.8     6.8     7.8 %   8.0 %

Amortization of acquired intangible assets

    0.0     0.0     0.0 %   0.1 %
                   

Total operating expenses

    27.7     26.2     26.8 %   32.2 %
                   

Loss from operations

    (3.6 )   (1.7 )   (2.1 )%   (8.9 )%

Interest income, net

    0.0     0.0     0.0 %   0.0 %

Other (expense) income, net

    0.0     0.0     (0.1 )%   0.0 %
                   

Loss before income taxes

    (3.5 )   (1.7 )   (2.2 )%   (8.9 )%

Provision for income taxes

    0.0     0.0     0.0 %   0.0 %
                   

Net loss

    (3.5 )%   (1.7 )%   (2.2 )%   (8.9 )%
                   
                   

Comparison of six months ended June 30, 2014 and 2013

    Net revenue

 
  Six months
ended
June 30,
  % Change  
 
 
2013 to 2014
 
 
 
2013
 
2014
 
 
  (in thousands)
   
 

Direct Retail

  $ 268,366   $ 469,534     75.0 %

Other

    114,842     104,610     (8.9 )%
               

Net revenue

  $ 383,208   $ 574,144     49.8 %

          In the six months ended June 30, 2014, net revenue increased by $190.9 million, or 49.8% compared to the six months ended June 30, 2013, primarily as a result of an increase in Direct Retail net revenue. In the six months ended June 30, 2014, Direct Retail net revenue increased by $201.2 million, or 75.0% compared to the six months ended June 30, 2013. The increase in Direct Retail net revenue was primarily due to sales to a larger customer base, as the number of active customers increased 75% in the six months ended June 30, 2014 compared to the six months ended June 30, 2013. Additionally, LTM net revenue per active customer increased 6.1% in the six months ended June 30, 2014 compared with the six months ended June 30, 2013. The decrease in Other revenue was primarily due to decreased sales through our retail partners.

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Table of Contents

    Cost of Goods Sold

 
   
   
  % Change  
 
  Six months
ended June 30,
 
 
  2013 to 2014  
 
 
2013
 
2014
 
 
  (in thousands)
   
 

Cost of goods sold

  $ 288,337   $ 440,483     52.8 %

As a percentage of net revenue

    75.2 %   76.7 %      

          In the six months ended June 30, 2014, costs of goods sold increased by $152.1 million, or 52.8%, compared to the six months ended June 30, 2013. Of the increase in cost of goods sold, $121.0 million was due to the increase in products sold to our larger customer base. In addition, shipping and fulfillment costs increased $31.1 million as a result of the increase in products sold during the period. Costs of goods sold as a percentage of net revenue increased in the six months ended June 30, 2014 compared to the six months ended June 30, 2013 as a result of changes in our pricing and the mix of the products sold.

    Operating Expenses

 
  Six months
ended June 30,
  % Change  
 
 
2013 to 2014
 
 
 
2013
 
2014
 
 
  (in thousands)
   
 

Sales and marketing

  $ 72,714   $ 138,228     90.1 %

General and administrative

    30,014     46,355     54.4 %

Amortization of acquired intangible assets

    106     499     370.8 %
               

  $ 102,834   $ 185,082     80.0 %

As a percentage of net revenue

                   

Sales and marketing

    19.0 %   24.1 %      

General and administrative

    7.8 %   8.0 %      

Amortization of acquired intangible assets

    0.0 %   0.1 %      
                 

    26.8 %   32.2 %      

          In the six months ended June 30, 2014, sales and marketing expenses increased by $65.5 million, or 90.1%, compared to the six months ended June 30, 2013. The increase in marketing expenses was primarily to grow and retain our customer base. We increased our advertising expenses by $43.5 million from $43.2 million in the six months ended June 30, 2013 to $86.7 million in the six months ended June 30, 2014, primarily driven by an increase in television and display advertising. Our customer service costs and merchant processing fees increased by $7.8 million from $15.0 million in the six months ended June 30, 2013 to $22.8 million in the six months ended June 30, 2014. We also incurred equity based compensation expense of $4.3 million recorded in sales and marketing in the six months ended June 30, 2014 associated with our 2014 Tender Offer. The remainder of the increase was primarily in sales and marketing labor costs for product development, operations, and marketing personnel.

          In the six months ended June 30, 2014, general and administrative expense increased by $16.3 million, or 54.4%, compared to the six months ended June 30, 2013. This increase was primarily attributable to personnel costs, rent, amortization and depreciation expenses.

          In the six months ended June 30, 2014, amortization of purchased intangible assets increased by $0.4 million, or 370.8%, compared to the six months ended June 30, 2013. The increase in

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amortization expense for the six months ended June 30, 2014 was primarily the result of our acquisition of DwellStudio.

    Interest Income, net

          In the six months ended June 30, 2014 and the six months ended June 30, 2013, interest income, net, was $0.1 million.

    Other (Expense), Income, net

          In the six months ended June 30, 2014, other (expense), net, decreased by $0.4 million compared to the six months ended June 30, 2013 primarily attributed to changes in foreign currency.

Comparison of years ended December 31, 2013 and 2012

    Net revenue

 
  Years ended
December 31,
  % Change  
 
 
2012 to 2013
 
 
 
2012
 
2013
 
 
  (in thousands)
   
 

Direct Retail

  $ 389,290   $ 673,446     73.0 %

Other

    211,738     242,397     14.5  
               

Net revenue

  $ 601,028   $ 915,843     52.4 %
                 
                 

          In 2013, net revenue increased by $314.8 million, or 52.4% compared to 2012 primarily as a result of increase in Direct Retail net revenue. In 2013, Direct Retail net revenue increased by $284.2 million, or 73.0% compared to 2012. The increase in Direct Retail net revenue was primarily due to sales to a larger customer base, as the number of active customers increased 61.0% in 2013 compared to the number of active customers in 2012. Additionally, LTM net revenue per active customer increased 7.3% in 2013 compared with 2012. The increase in Other revenue was primarily due to increased sales through our existing and new retail partners.

    Cost of Goods Sold

 
  Years ended
December 31,
  % Change  
 
 
2012 to 2013
 
 
 
2012
 
2013
 
 
  (in thousands)
   
 

Cost of goods sold

  $ 455,879   $ 691,602     51.7 %

As a percentage of net revenue

    75.8 %   75.5 %      

          In 2013, costs of goods sold increased by $235.7 million, or 51.7%, compared to 2012. Of the increase in cost of goods sold, $190.3 million was due to the increase in products sold to our larger customer base. In addition, shipping and fulfillment costs increased $45.4 million as a result of the increase in products sold during the period.

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Table of Contents

    Operating Expenses

 
  Years ended
December 31,
  % Change  
 
 
2012 to 2013
 
 
 
2012
 
2013
 
 
  (in thousands)
   
 

Sales and marketing

  $ 113,370   $ 177,475     56.5 %

General and administrative

    52,961     62,246     17.5  

Amortization of acquired intangible assets

    212     539     154.2  
               

  $ 166,543   $ 240,260     44.3 %
                 
                 

As a percentage of net revenue

                   

Sales and marketing

    18.9 %   19.4 %      

General and administrative

    8.8     6.8        

Amortization of acquired intangible assets

    0.0     0.1        
                 

    27.7 %   26.2 %      

          In 2013, sales and marketing expenses increased by $64.1 million, or 56.5%, compared to 2012. The increase in marketing expenses was primarily to grow and retain our customer base. We increased our advertising expenses by $43.0 million from $65.5 million in 2012 to $108.5 million in 2013, primarily driven by an increase in television and display advertising. Our customer service costs and merchant processing fees increased by $9.8 million from $25.7 million in 2012 to $35.5 million in 2013. The remainder of the increase was primarily in sales and marketing labor costs for product development, operations, and marketing personnel.

          In 2013, general and administrative expense increased by $9.3 million, or 17.5%, compared to 2012. This increase was primarily attributable to personnel costs, rent, information technology and amortization and depreciation expenses.

          In 2013, amortization of purchased intangible assets increased by $0.3 million, or 154.2%, compared to 2012. The increase in amortization expense for 2013 was primarily the result of our acquisition of DwellStudio.

    Interest Income, net

          In 2013 and 2012, interest income, net, was $0.2 million.

    Other (Expense), Income, net

          In 2013, other (expense), income, net, increased by $0.1 million compared to 2012 primarily attributed to changes in foreign currency.

Quarterly Results of Operations and Other Financial and Operations Data

          The following tables set forth selected unaudited quarterly results of operations and other financial and operations data for the six quarters ended June 30, 2014, as well as the percentage that each line item represents of net revenue. The information for each of these quarters has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this prospectus and in the opinion of management, reflects all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of our consolidated results of operations for these periods. This data should be read in conjunction with our consolidated

65


Table of Contents

financial statements and related notes included elsewhere in this prospectus. Historical results are not necessarily indicative of the results to be expected in the future.

 
  Three months ended  
 
 
March 31,
2013
 
June 30,
2013
 
September 30,
2013
 
December 31,
2013
 
March 31,
2014
 
June 30,
2014
 
 
  (in thousands)
 

Consolidated Statements of Operations:

                                     

Net revenue

 
$

179,831
 
$

203,377
 
$

237,302
 
$

295,333
 
$

278,707
 
$

295,437
 

Cost of goods sold

    135,798     152,539     178,656     224,609     213,500     226,983  
                           

Gross profit

    44,033     50,838     58,646     70,724     65,207     68,454  

Operating expenses:

   
 
   
 
   
 
   
 
   
 
   
 
 

Sales and marketing

    34,079     38,635     46,602     58,159     70,344     67,884  

General and administrative

    15,327     14,687     15,530     16,702     22,769     23,586  

Amortization of acquired intangible assets

    53     53     184     249     249     250  
                           

Total operating expenses

    49,459     53,375     62,316     75,110     93,362     91,720  
                           

Loss from operations

    (5,426 )   (2,537 )   (3,670 )   (4,386 )   (28,155 )   (23,266 )

Interest income, net

    67     57     61     60     56     77  

Other (expense) income, net

    (384 )   (120 )   579     219     88     (184 )
                           

Loss before income taxes

    (5,743 )   (2,600 )   (3,030 )   (4,107 )   (28,011 )   (23,373 )

Provision for income taxes

        5     (1 )   (50 )   (15 )   (2 )
                           

Net loss

  $ (5,743 ) $ (2,595 ) $ (3,031 ) $ (4,157 ) $ (28,026 ) $ (23,375 )
                           
                           

 

 
  Three months ended  
 
 
March 31, 2013
 
June 30, 2013
 
September 30, 2013
 
December 31, 2013
 
March 31, 2014
 
June 30, 2014
 

Consolidated Statements of Operations:

                                     

Net revenue

   
100.0

%
 
100.0

%
 
100.0

%
 
100.0

%
 
100.0

%
 
100.0

%

Cost of goods sold

    75.5     75.0     75.3     76.1     76.6     76.8  
                           

Gross profit

    24.5     25.0     24.7     23.9     23.4     23.2  

Operating expenses:

   
 
   
 
   
 
   
 
   
 
   
 
 

Sales and marketing

    19.0     19.0     19.6     19.7     25.2     23.0  

General and administrative

    8.5     7.2     6.5     5.6     8.2     7.9  

Amortization of acquired intangible assets

    0.0     0.0     0.1     0.1     0.1     0.1  
                           

Total operating expenses

    27.5     26.2     26.2     25.4     33.5     31.0  
                           

Loss from operations

    (3.0 )   (1.2 )   (1.5 )   (1.5 )   (10.1 )   (7.8 )

Interest income, net

    0.0     0.0     0.0     0.0     0.0     0.0  

Other (expense) income, net

    (0.2 )   (0.1 )   0.2     0.1     0.0     (0.1 )
                           

Loss before income taxes

    (3.2 )   (1.3 )   (1.3 )   (1.4 )   (10.1 )   (7.9 )

Provision for income taxes

    0.0     0.0     0.0     0.0     0.0     (0.0 )
                           

Net loss

    (3.2 )%   (1.3 )%   (1.3 )%   (1.4 )%   (10.1 )%   (7.9 )%
                           
                           

66


 
  Three months ended  
 
 
March 31,
2013
 
June 30,
2013
 
September 30,
2013
 
December 31,
2013
 
March 31,
2014
 
June 30,
2014
 
 
  (in thousands, except Average Order Value and LTM Net Revenue Per Active Customer)
 

Consolidated Financial Metrics

                                     

Net Revenue

  $ 179,831   $ 203,377   $ 237,302   $ 295,333   $ 278,707   $ 295,437  

Adjusted EBITDA(1)

  $ (2,542 ) $ 442   $ (181 ) $ (647 ) $ (19,403 ) $ (17,599 )

Free Cash Flow(2)

  $ (24,683 ) $ 11,409   $ (3,982 ) $ 35,890   $ (38,506 ) $ (31,744 )

Direct Retail Financial and Operating Metrics

                                     

Direct Retail Net Revenue

  $ 120,617   $ 147,748   $ 181,693   $ 223,388   $ 226,000   $ 243,534  

Active Customers

    1,366     1,506     1,775     2,092     2,409     2,635  

LTM Net Revenue Per Active Customer

  $ 305   $ 313   $ 315   $ 322   $ 323   $ 332  

Orders Delivered

    555     703     884     1,172     1,138     1,084  

Average Order Value

  $ 217   $ 210   $ 206   $ 191   $ 199   $ 225  

(1)
Adjusted EBITDA is a non-GAAP financial measure that we calculate as earnings (loss) before depreciation and amortization, equity-based compensation, interest and other income and expense and taxes. Refer to the section of this prospectus captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures — Adjusted EBITDA" for more information.

    The following table reflects the reconciliation of net loss to Adjusted EBITDA for each of the periods indicated:

 
  Three months ended  
 
 
March 31,
2013
 
June 30,
2013
 
September 30,
2013
 
December 31,
2013
 
March 31,
2014
 
June 30,
2014
 
 
  (in thousands)
 

Reconciliation of Adjusted EBITDA

                                     

Net loss

  $ (5,743 ) $ (2,595 ) $ (3,031 ) $ (4,157 ) $ (28,026 ) $ (23,375 )

Depreciation and amortization

    2,884     2,979     3,489     3,739     4,198     4,693  

Equity-based compensation

                    4,554     974  

Interest income, net

    (67 )   (57 )   (61 )   (60 )   (56 )   (77 )

Other (expense)
income, net

    384     120     (579 )   (219 )   (88 )   184  

Taxes

        (5 )   1     50     15     2  
                           

Adjusted EBITDA

  $ (2,542 ) $ 442   $ (181 ) $ (647 ) $ (19,403 ) $ (17,599 )
                           
                           
(2)
Free cash flow is a non-GAAP financial measure that we calculate as net cash (used in) provided by operating activities less net cash used to purchase property and equipment including leasehold improvements and site and software development costs. Refer to the section of this prospectus captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures — Free Cash Flow" for more information.

    The following table presents a reconciliation of free cash flow to net cash provided by operating activities for each of the periods indicated:

 
  Three months ended  
 
 
March 31,
2013
 
June 30,
2013
 
September 30,
2013
 
December 31,
2013
 
March 31,
2014
 
June 30,
2014
 
 
  (in thousands)
 

Net cash provided by operating activities, net of acquisition

  $ (20,451 ) $ 14,545   $ (517 ) $ 40,836   $ (24,432 ) $ (15,339 )

Purchase of property, equipment, and leasehold improvements

    (2,236 )   (1,065 )   (1,120 ) $ (2,318 )   (11,357 )   (12,974 )

Site and software development costs

    (1,996 )   (2,071 )   (2,345 ) $ (2,628 )   (2,717 )   (3,431 )
                           

Free cash flow

  $ (24,683 ) $ 11,409   $ (3,982 ) $ 35,890   $ (38,506 ) $ (31,744 )
                           
R