Despite beating on both top and bottom lines, Etsy (NASDAQ: ETSY) shares were down 7% in after-hours trading last Wednesday following the company’s earnings release. Even though Etsy reported a blowout quarter for sales, investor sentiment was dampened by a disappointing forecast for the current quarter. Etsy is preparing to see lower sales growth in Q2 as the effects of the pandemic wear off and physical retail stores reopen around the globe.
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How did Etsy perform this quarter?
In the company’s first-quarter earnings release, Etsy reported:
- Earnings per share: $1.00 versus Wall Street’s estimates of $0.97, compared to $0.10 in the year-ago period.
- Revenue: $550.6 million, beating analyst expectations of $530.4 million, up 141% to $228 million year-over-year (YoY).
- Gross merchandise sales: $3.14 billion, topping expectations of $3.04 billion, up 128% YoY.
Etsy’s cautious forecast for the second quarter
A disappointing outlook for the second quarter has worried Etsy investors, with the e-commerce firm saying it expects slowing revenue and sales growth. The company forecast revenue to grow between 15% and 25% and gross merchandise sales to grow between 5% and 15% year-over-year in Q2, compared to the triple-digit growth Etsy saw between 2019 and 2020. It’s not surprising that growth would slow down though after the surge in sales Etsy saw during the pandemic, therefore, this realistic estimate for growth should not be viewed negatively by investors.
Even though Etsy did not give a full-year outlook, CFO Rachel Glaser commented on projections during the company’s Q4 2020 earnings call, stating that she expects growth to “rapidly decelerate starting in Q2 with the majority of incremental growth for the year realized in the first quarter.”
At the start of the pandemic, Etsy saw a surge in sales thanks to users buying face masks on the platform. Over time, the marketplace has seen growth in its other categories, including gifts, recreation tools, and pet supplies. This proves that the popularity of the platform will continue far after the pandemic. Furthermore, Etsy’s growth over the last year has helped the e-commerce company solidify itself as a real competitor to rivals Amazon (NASDAQ: AMZN) and Shopify (NYSE: SHOP).
Etsy stock is up 144% over the last 12 months, versus the tech-heavy Nasdaq’s gain of 45%, but shares are still down 16% over the last three months. This may be in part due to the market reflecting that any pandemic-fueled gains that Etsy previously enjoyed may have already been realized as well as a wider market sell off.
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