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Why Is Etsy (ETSY) Up 39.4% Since Last Earnings Report?

A month has gone by since the last earnings report for Etsy (ETSY). Shares have added about 39.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Etsy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Etsy Reports Loss in Q3 Earnings

Etsy  incurred a third-quarter 2022 loss of $7.62 per share. ETSY had delivered earnings of 62 cents per share in the year-ago quarter. The bottom line included an $(8.20) impact of impairment charge associated with the goodwill of Depop and Elo7.

Excluding this impact, the bottom line for the reported quarter stands at 58 cents per share, surpassing the Zacks Consensus Estimate by 56.8%.

Revenues advanced 11.7% year over year to $594.5 million. The figure beat the Zacks Consensus Estimate of $560.2 million.

Top-line growth was driven by accelerating services and marketplace revenues.

Top Line in Detail

Marketplace revenues were $443.5 million (74.6% of the total revenues), up 12.1% from the year-ago quarter’s level. This was driven by the solid momentum across buyers. ETSY acquired 6 million new buyers, which was a major positive.

Services revenues were $150.9 million (25.4% of the total revenues), up 10.3% on a year-over-year basis.

Quarterly Specifics

Etsy’s active buyer base decreased 1.9% from the prior-year quarter’s figure to 94.1 million. The active seller base stood at 7.4 million, down 0.9% year over year.

ETSY witnessed solid momentum in buyer reactivation. Reactivated buyers were 5.1 million, up 24.4% year over year.

GMS of ETSY was $3 billion, down 3.3% year over year. The Etsy marketplace’s GMS was $2.6 billion, down 3.8% from the prior-year quarter’s figure.

Non-U.S. GMS for the Etsy marketplace rose 9% from the prior-year quarter’s figure on a currency-neutral basis and accounted for 44% of the total GMS.

Operating Details

In third-quarter 2022, the gross margin was 70.7%, which contracted 40 basis points (bps) year over year.

Total operating expenses were $1.4 billion, reflecting a jump from $295.03 million.

Consequently, ETSY reported a loss of $954.8 million from operations in the reported quarter against an income of $83.7 million generated in the year-ago quarter.

Balance Sheet

As of Sep 30, 2022, cash and cash equivalents totaled $789.9 million, which increased from $758.9 million as of Jun 30, 2022.

Short-term investments were $251.2 million, up from $247.8 million in the previous quarter.

Long-term debt stood at $2.278 billion at the end of the third quarter compared with $2.277 billion at the end of the previous quarter.

Guidance

For fourth-quarter 2022, Etsy anticipates total revenues between $700 million and $780 million.

GMS is expected to be $3.6-$4 billion.

The adjusted EBITDA margin is expected to be 27%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 21.07% due to these changes.

VGM Scores

Currently, Etsy has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Etsy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Etsy is part of the Zacks Internet - Services industry. Over the past month, Shopify (SHOP), a stock from the same industry, has gained 28.6%. The company reported its results for the quarter ended September 2022 more than a month ago.

Shopify reported revenues of $1.37 billion in the last reported quarter, representing a year-over-year change of +21.6%. EPS of -$0.02 for the same period compares with $0.08 a year ago.

For the current quarter, Shopify is expected to post break-even earnings per share, indicating a change of -100% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

Shopify has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.

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