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Etsy (ETSY) Up 3.7% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Etsy (ETSY). Shares have added about 3.7% 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 drivers.

ETSY's Q1 Earnings Miss Estimates, Revenues Increase Y/Y

Etsy reported first-quarter 2024 earnings of 48 cents per share, missing the Zacks Consensus Estimate by 2.04%. The bottom-line figure reflects a year-over-year decrease of 9.4%.

Revenues advanced 0.8% year over year to $645.95 million. The figure missed the Zacks Consensus Estimate by 0.4%.

Top-line growth was driven by accelerating services revenues.

Strong momentum across active sellers and reactivated buyers remained positive.

Top Line in Detail

Marketplace revenues were $466.98 million (72.3% of the total revenues), down 0.1% from the year-ago quarter’s level. Nevertheless, ETSY acquired 5.7 million new buyers, which was a major positive. The total number of active buyers on Etsy’s marketplace stood at 91.6 million, which increased 1.9% year over year.

Services revenues were $178.97 million (27.7% of the total revenues), up 3.2% on a year-over-year basis. Etsy ads acted as a key driver of revenue growth.

Quarterly Specifics

Etsy’s active buyer base increased 0.9% from the prior-year quarter’s figure to 96.4 million, which missed the consensus mark of 96.6 million.

The active seller base stood at 9.13 million, up 15% year over year. The figure missed the consensus mark of 9.3 million. Increasing investments to support sellers with new tools and insights, such as a ‘Growth Page’ with customer insights to help sellers grow their businesses and a new ‘earnings calculator’ to assist sellers in understanding various inputs that go into their profitability, had a positive effect on seller base growth.

ETSY witnessed solid momentum in buyer reactivation. Reactivated buyers were 6.3 million, up 5.9% year over year.

Gross Merchandise Sales (GMS) of $3 billion were down 3.7% on a reported basis and 4.1% on a currency-neutral basis from the prior-year quarter. The reported figure lagged the Zacks Consensus Estimate of $3.05 billion.

The Etsy marketplace’s GMS was $2.6 billion, down 5.3% on a reported basis from the year-ago quarter’s figure.

Operating Details

In first-quarter 2024, the gross margin was 71%, which expanded 150 basis points year over year.

Total operating expenses were $390.73 million, up 6.4% from the prior-year quarter. As a percentage of revenues, the figure expanded to 60.5% from 57.3% in the year-ago quarter.

Consequently, ETSY reported an operating income of $68.1 million compared with an operating income of $78.2 million reported in the prior-year quarter.

Balance Sheet & Cash Flows

As of Mar 31, 2024, cash and cash equivalents totaled $788.84 million, which decreased from $914.32 million as of Dec 31, 2023.

Short-term investments were $254.88 million, up from $236.12 million in the previous quarter.

Long-term debt stood at $2.28 billion at the end of the first quarter, which remained flat compared with the figure at the end of the prior quarter.

In the first quarter of 2024, the company generated $69.03 million in cash from operations, down from $295.1 million in the previous quarter.

Guidance

For second-quarter 2024, Etsy anticipates the take rate to be similar to the actual Q1’24 figure of 21.6%.

GMS is expected to decline, with the downside being a mid-single-digit decline and the upside being the top end of a low-single-digit decline

The adjusted EBITDA margin is expected to be similar to the reported Q1’24 figure of 26%.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -8.5% due to these changes.

VGM Scores

Currently, Etsy has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 belongs to the Zacks Internet - Services industry. Another stock from the same industry, Alphabet Inc. (GOOG), has gained 3% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.

Alphabet reported revenues of $67.59 billion in the last reported quarter, representing a year-over-year change of +16.4%. EPS of $1.89 for the same period compares with $1.17 a year ago.

Alphabet is expected to post earnings of $1.87 per share for the current quarter, representing a year-over-year change of +29.9%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.1%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for Alphabet. Also, the stock has a VGM Score of D.

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