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Etsy Earnings: What to Watch

Daniel Sparks, The Motley Fool

Online marketplace Etsy (NASDAQ: ETSY) is scheduled to report its fourth-quarter and full-year results on Monday, Feb. 25. Ahead of its report, the stock has surged. Shares are up 17% year to date -- and that's on top of a 133% gain in 2018. The business has boomed on the heels of improved execution under Etsy CEO Josh Silverman and an increase in its sales commission fees. Revenue growth accelerated throughout 2018, generating optimism among investors.

The pressure is on, to say the least. Ahead of Etsy's fourth-quarter and full-year update, here's an overview of some items worth watching.

Etsy website displayed on a laptop
Etsy website displayed on a laptop

Image source: Etsy.

Revenue and earnings per share

Etsy's third-quarter revenue increased an impressive 41% year over year, marking a significant acceleration from 30% growth in Q2. Management expects this momentum to continue. For Etsy's fourth quarter of 2018, management guided for revenue between $192 million and $196 million, implying 43% year-over-year revenue growth based on the midpoint of this range.

For Etsy's earnings per share, however, investors shouldn't expect any year-over-year growth. Management said in its third-quarter update that it is increasing its marketing spend in the back half of the year. In addition, the company plans to continue investing aggressively in its business.

Analysts, on average, are expecting earnings per share of $0.21, down from $0.36 in the year-ago period.

Gross merchandise sales volume growth

Etsy's gross merchandise sales (GMS) volume increased 20% year over year in Q3. This growth rate was well below Etsy's revenue growth during the same period. It highlights how the company's increased seller transaction fee, which started rolling out in July of last year, was a major catalyst for the period's outsize revenue growth. Without this fee increase, revenue growth would have been closer to this 20% GMS volume growth.

Given that Etsy's GMS volume grew by 20% in both Q2 and Q3, investors should look for a similar growth rate for the metric in Q4.

Services revenue growth

Etsy's seller services revenue consists of fees that sellers pay for services such as promoted listings, shipping services, prominent placement in search results, and payment processing. It's important to note that this revenue, which accounts for about a quarter of the online marketplace's total revenue, has seen strong growth recently. For the nine months ending Sept. 30, 2018, seller services revenue increased 42% year over year. But Etsy's year-over-year growth rate for seller services revenue pulled back slightly in Q3, coming in at 37%.

Will this segment see a further deceleration in Q4? If there is, it won't likely be very meaningful. In the company's most recent earnings call, management said its third-quarter seller services revenue growth was driven primarily by growth in promoted listings -- an ad product that finished the quarter performing very well.

Check in on Etsy on Monday, after market close, to see how the online marketplace is doing.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Etsy. The Motley Fool has a disclosure policy.