Wayfair Inc. (W) may have buyers excited about rock-bottom prices for home goods, but its business model is unsustainable, Citron Research analyst Andrew Left says.

"The accounts payable, the cash flow, the business model – it's stupid," Left said in a phone interview with Real Money. "They'll never make money."

Wayfair stock is up 30.3 percent year to date as its online discount model for home decor and furnishings has churned up interest. (See also: Wayfair, Overstock Riding Online Trends.)

Left, a notable short seller, says shareholders should be alarmed that a company of Wayfair's size, with more than 10,000 suppliers, uses manual internal controls, or does accounting by hand instead of automation. He compared the process to that used by convicted Ponzi​ schemer Bernie Madoff, who personally supervised his company's manual process.

In other areas of concern to Citron, Boston-based Wayfair’s accounts payable comprises 50 percent of its total assets and are 10 percent more than its revenue. Its accounts payable is also more than its $100 million cash on hand, Left says in an unpublished report obtained by Real Money. 

Wayfair’s first-quarter earnings report in February showed it was still operating firmly in the red, although it had a rapidly growing customer base and significantly increasing revenue. Quarterly sales increased 33 percent year over year to $984.6 million, as the number of its active customers grew 53 percent to 8.3 million.

Still, Left says the company’s negatives – which go beyond the ballooning accounts payable – outstretch its positives, saying that a detailed look at user numbers reveal red flags among U.S. consumers. Unique visitors from mobile U.S. internet slid 1 percent as of February, and the number of unique U.S. visitors fell 11.4 percent year over year to 16.9 million.  

Left says sputtering user growth jeopardizes Wayfair’s free cash flow, which he calls an “illusion.” Without the growth of liabilities and accounts payable, Wayfair’s cash flow would be negative, he points out.

"As Wayfair's revenue growth slows, I would expect the trend in accounts payable and accrued liabilities growth will reverse, hurting their operating cash flow trends," Left said in the report.

Finally, Left identified areas where Wayfair’s retail competitors Restoration Hardware Inc. (RH), Amazon.com Inc. (AMZN​) and Wal-Mart Stores Inc. (WMT) have distinct advantages. Namely, that Restoration Hardware can provide customers with an in-store experience where they can see their products before buying them. And Amazon and Wal-Mart can exert competitive pricing in the online realm. 

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