Warby Parker's 2025 Results: Solid Execution But Valuation Remains a Key Hurdle

What happened

Warby Parker reported fourth-quarter and full-year 2025 results, highlighting 13.0% annual revenue growth, 11.2% quarterly growth, 7.0% active customer growth, and its first full year of positive net income. However, the DeepValue master report underscores that the stock trades at extreme valuation multiples, such as 216x EV/EBITDA, which already price in sustained mid-teens growth and margin expansion. The revenue growth aligns with but does not exceed management's trimmed guidance from earlier in the year, suggesting stabilization rather than acceleration, while gross margins face headwinds from tariffs and a shift toward lower-margin contacts and exams. Critical analysis reveals that despite the positive net income milestone, profitability remains modest, and the company's high fixed costs from store leases add operational risk if growth slows. Overall, while Warby Parker demonstrates operational progress with its store expansion and customer metrics, the valuation leaves little room for error, making the stock vulnerable to multiple compression.

Implication

The achievement of positive net income marks a milestone but is insufficient to justify the stock's high multiples, given the modest earnings base and ongoing margin pressures. Revenue growth, while solid, is at the lower end of historical ranges and may not sustain the market's optimistic assumptions embedded in the current price. Active customer growth and average revenue per customer improvements are positive, but they must persist amid competitive and macroeconomic challenges to drive meaningful earnings acceleration. The DeepValue report's bear scenario, with a 30% probability and implied value of $18, highlights the significant downside risk if growth slows or margins stall, which could trigger sharp multiple compression. Therefore, investors should consider the stock overvalued at current levels, with better opportunities likely emerging on a pullback or after clearer evidence of sustained profitability and growth.

Thesis delta

The news confirms Warby Parker's ability to deliver positive net income and maintain growth, but it does not alter the core thesis that the stock is overvalued and carries high risk. If anything, the slightly lower Q4 growth rate reinforces concerns about potential deceleration, keeping the 'POTENTIAL SELL' rating intact. No material shift is warranted; the focus remains on valuation risk and the need for consistent execution to avoid downside.