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Why Is Etsy (ETSY) Down 16.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Etsy (ETSY). Shares have lost about 16.3% 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 drivers.

Etsy's Q4 Earnings Down Y/Y

Etsy reported fourth-quarter 2022 earnings of 77 cents per share, reflecting a year-over-year decline of 30.6%. Also, the bottom line missed the Zacks Consensus Estimate by 6.1%.

Revenues advanced 12.6% year over year to $807.2 million. The figure beat the Zacks Consensus Estimate of $753.9 million.

Top-line growth was driven by accelerating services and marketplace revenues. Moreover, strong momentum across the company’s marketplace during the holiday shopping season contributed well.

Top Line in Detail

Marketplace revenues were $600.16 million (74.3% of the total revenues), up 10.9% from the year-ago quarter’s level. This was driven by strong performance during the holiday shopping season. Also, solid momentum across buyers remained positive. ETSY acquired 9.5 million new buyers, which was a major positive.

Services revenues were $207.08 million (25.7% of the total revenues), up 17.7% on a year-over-year basis.

Quarterly Specifics

Etsy’s active buyer base decreased 1.3% from the prior-year quarter’s figure to 95.08 million. The active seller base stood at 7.5 million, down 0.7% year over year.

GMS of ETSY was $4.03 billion, down 4% year over year. The Etsy marketplace’s GMS was $3.7 billion, down 3.5% from the prior-year quarter’s figure.

Non-U.S. GMS for the Etsy marketplace rose 5% from the prior-year quarter’s figure on a currency-neutral basis and accounted for 45% of the total GMS.

Operating Details

In fourth-quarter 2022, the gross margin was 72%, which expanded 110 basis points (bps) year over year.

Total operating expenses were $442.12 million, reflecting growth of 20.8% on a year-over-year basis.

Consequently, the operating margin was 17.3%, which contracted 250 bps year over year.

Balance Sheet

As of Dec 31, 2022, cash and cash equivalents totaled $921.3 million, which increased from $789.9 million as of Sep 30, 2022.

Short-term investments were $250.4 million, down from $251.2 million in the previous quarter.

Long-term debt stood at $2.279 billion at the end of the fourth quarter compared with $2.278 billion at the end of the previous quarter.

Guidance

For the first quarter of 2023, Etsy anticipates total revenues between $600 million and $640 million. The Zacks Consensus Estimate for the same is pegged at $620.68 million.

GMS is expected to be $2.95-$3.15 billion.

The adjusted EBITDA margin is expected to be 26-27%.

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How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Etsy has a strong Growth Score of A, 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 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 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, DoorDash, Inc. (DASH), a stock from the same industry, has gained 6.6%. The company reported its results for the quarter ended December 2022 more than a month ago.

DoorDash, Inc. reported revenues of $1.82 billion in the last reported quarter, representing a year-over-year change of +39.9%. EPS of -$0.63 for the same period compares with -$0.45 a year ago.

DoorDash, Inc. is expected to post a loss of $0.57 per share for the current quarter, representing a year-over-year change of -18.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +6.1%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for DoorDash, Inc. Also, the stock has a VGM Score of D.

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