Why Is Etsy (ETSY) Down 11.4% Since Last Earnings Report?
It has been about a month since the last earnings report for Etsy (ETSY). Shares have lost about 11.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Etsy due for a breakout? 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 drivers.
Etsy's Q1 Earnings Down Y/Y
Etsy reported first-quarter 2023 earnings of 53 cents per share, beating the Zacks Consensus Estimate by 10.4%. The bottom-line figure reflects a year-over-year decline of 11.7%.
Revenues advanced 10.6% year over year to $640.88 million. The figure beat the Zacks Consensus Estimate of $623.19 million.
Top-line growth was driven by accelerating services and marketplace revenues.
Top Line in Detail
Marketplace revenues were $467.52 million (72.9% of the total revenues), up 9.3% from the year-ago quarter’s level, driven by the solid momentum across buyers. ETSY acquired 7 million new buyers, which was a major positive. The total number of active buyers on Etsy’s marketplace stood at 89.9 million, which was up 1% year over year. The active buyer base experienced year-over-year growth for the first time since fourth-quarter 2021.
Services revenues were $173.36 million (27.1% of the total revenues), up 14.4% on a year-over-year basis.
Quarterly Specifics
Etsy’s active buyer base increased by 0.4% from the prior-year quarter’s figure to 95.53 million. The active seller base stood at 7.94 million, up 3.8% year over year.
ETSY witnessed solid momentum in buyer reactivation. Reactivated buyers were 6 million, up 21% year over year.
Gross merchandise sales (GMS) of $3.1 billion were down 4.6% on a reported basis and 2.6% on a currency-neutral basis from the prior-year quarter. The Etsy marketplace’s GMS was $2.7 billion, down 4.7% and 2.6% on a reported basis and a currency-neutral basis, respectively, from the year-ago quarter’s figure. A shift in consumer preferences from goods to services and weakness in large product categories like home, living and craft supplies, were concerns.
GMS Ex-U.S. domestic for the Etsy marketplace rose 3% from the prior-year quarter’s figure on a currency-neutral basis and accounted for 46% of the total GMS.
Operating Details
In first-quarter 2023, the gross margin was 69.5%, which contracted 60 basis points (bps) year over year.
Total operating expenses were $367.2 million, up 14.1% from the prior-year quarter. As a percentage of revenues, the figure expanded 180 bps year over year to 57.3%.
Consequently, ETSY reported operating margin of 12.2%, which contracted 240 bps year over year.
Balance Sheet & Cash Flows
As of Mar 31, 2023, cash and cash equivalents totaled $786.8 million, which decreased from $921.3 million as of Dec 31, 2022.
Short-term investments were $252.7 million, up from $250.4 million in the previous quarter.
Long-term debt stood at $2.28 billion at the end of the first quarter compared with $2.279 billion at the end of the prior quarter.
In first-quarter 2023, the company generated $55.6 million in cash from operations.
Guidance
For second-quarter 2023, Etsy anticipates total revenues between $590 million and $640 million.
GMS is expected to be $2.85-$3.10 billion.
The adjusted EBITDA margin is expected to be 26%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -8.44% due to these changes.
VGM Scores
At this time, Etsy has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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 belongs to the Zacks Internet - Services industry. Another stock from the same industry, Uber Technologies (UBER), has gained 2.6% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
Uber reported revenues of $8.82 billion in the last reported quarter, representing a year-over-year change of +28.7%. EPS of -$0.08 for the same period compares with -$3.04 a year ago.
Uber is expected to post a loss of $0.04 per share for the current quarter, representing a year-over-year change of +97%. Over the last 30 days, the Zacks Consensus Estimate has changed +33.7%.
Uber has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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