Etsy (ETSY) Down 4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Etsy (ETSY). Shares have lost about 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 its most recent earnings report in order to get a better handle on the important catalysts.

Etsy's Q1 Earnings & Revenues Beat Estimates

Etsy delivered first-quarter 2022 earnings of 60 cents per share, which surpassed the Zacks Consensus Estimate by 1.7%. Further, the bottom line was down 40% from the year-ago quarter.

Revenues advanced 5.2% year over year to $579.3 million. Notably, the figure beat the Zacks Consensus Estimate of $576 million.

Year-over-year revenue growth was primarily driven by accelerating services revenues.

Solid momentum across buyers and sellers contributed well. Strengthening gross merchandise sales (“GMS”) were other tailwinds.

Top Line in Detail

Marketplace revenues were $427.7 million (73.8% of total revenues), up 3.4% from the year-ago quarter. This was driven by solid momentum across buyers. Notably, it acquired 7 million buyers, which was a major positive.

Services revenues were $151.6 million (26.2% of total revenues), which rose 10.6% on a year-over-year basis.

Quarter in Detail

Etsy’s active buyer base grew 4.9% from the prior-year quarter to 95.1 million. The active seller base stood at 7.7 million, up 62.8% year over year.

Notably, GMS of the company was $3.25 billion, which rose 3.5% year over year.

The Etsy marketplace’s GMS was at $2.8 billion, down 2% from the prior-year quarter. This was attributed to the normalization to the pre-pandemic levels. Also, sluggish consumer discretionary spending and re-openings were other negatives.

Marketplace GMS per active buyer on a trailing 12-month basis was $137 in the reported quarter, which rose 10% year over year.

 Non-U.S. GMS for the Etsy marketplace rose 5% from the prior-year quarter and accounted for 45% of the total GMS.

Operating Details

In first-quarter 2022, the gross margin was 70.1%, which contracted 394 basis points (bps) year over year.

Total operating expenses were $321.9 million, reflecting a year-over-year increase of 25.2%. However, the figure, as a percentage of revenues, expanded 890 bps from the year-ago quarter to 55.6% in the reported quarter.

The operating margin was 14.6%, contracting from 27.3% in the year-ago quarter.

Balance Sheet & Cash Flows

As of Mar 31, 2022, cash and cash equivalents totaled $756.2 million, which decreased from $780.2 million as of Dec 31, 2021. Short-term investments were $225.9 million, up from $204.4 million in the previous quarter.

Long-term debt stood at $2.276 billion at the end of the first quarter compared with $2.275 billion at the end of the previous quarter.

The company generated $59.5 million in cash from operations in the reported quarter, down from $290.5 million in the prior quarter.

Guidance

For second-quarter 2022, Etsy anticipates total revenues between $540 million and $590 million.

GMS is expected to be $2.9-$3.2 billion.

The adjusted EBITDA margin is expected to be 25%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -46.01% 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. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 is part of the Zacks Internet - Services industry. Over the past month, Akamai Technologies (AKAM), a stock from the same industry, has gained 4.1%. The company reported its results for the quarter ended March 2022 more than a month ago.

Akamai Technologies reported revenues of $903.65 million in the last reported quarter, representing a year-over-year change of +7.2%. EPS of $1.39 for the same period compares with $1.38 a year ago.

Akamai Technologies is expected to post earnings of $1.31 per share for the current quarter, representing a year-over-year change of -7.8%. Over the last 30 days, the Zacks Consensus Estimate has changed -10.9%.

Akamai Technologies has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

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