Direct-to-Consumer Stocks Slipping As Costs Rise

Changing Market’s Headwinds

Direct-to-consumer brands like Warby Parker (WRBY) and Stitch Fix (SFIX) are stumbling as new market dynamics turn hostile. Soaring Facebook (FB) ad prices, stricter Apple (AAPL) iOS privacy rules, and crippling cost increases from supply-chain disruptions leave these former market darlings struggling.

The lean and nimble direct-to-consumer model cut out the middleman, lowering overhead and tapping into the promise of internet shopping. This wave of enthusiasm pushed their valuations sky-high. The tides are now changing, and direct-to-consumer stock valuations have plummeted.

Dire Financials

Many of these direct-to-consumer companies are facing significant net losses and have seen their stock price fall by more than 50% from 2021 highs. The volatility of their financials is staggering. On the heels of $173 million in net income the prior year, Wayfair (W) posted losses of $78 million in the third quarter of 2021.

Analysts say it could be important for these companies to embrace platforms outside of Facebook for their advertising, such as TikTok, or to source products in the US. Venture capitalists could help stabilize the sector, as direct-to-consumer companies have taken in around $1.05 billion in funding in 2022.

Outlook for Investors

It is a precarious time for these internet-based companies as the current environment presents a tangle of problems coming from multiple directions. Companies with low or no profits will likely be harmed by the impact of interest-rate increases, which may lead to diminished enthusiasm for the tech sector and other growth stocks.

Some market observers question whether the previous run-up in stock prices ever truly reflected the actual prospects of these firms. It may harken back to the “irrational exuberance” of the dot-com bubble of the late 1990s. Direct-to-consumer companies are looking to embrace the model while tweaking its execution.

Things are changing daily within the financial world. Sign up for the SoFi Daily Newsletter to get the latest news updates in your inbox every weekday.

Sign up

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

All your finances.
All in one app.

SoFi QR code, Download now, scan this with your phone’s camera

All your finances.
All in one app.

App Store rating

SoFi iOS App, Download on the App Store SoFi Android App, Get it on Google Play

ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

TLS 1.2 Encrypted
Equal Housing Lender