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Will the Etsy share price see a post-earnings bounce?

The Etsy [ETSY] share price, despite falling from an all-time high at $251.86 on 2 March, has had a positive ride during the coronavirus pandemic. The stock has climbed 55.02% over the last 12 months to $183.51 on 30 July.

However, it has been a volatile ride for shares in the online marketplace so far in 2021. The Etsy share price is up 6.64% year-to-date (through 30 July). The stock was affected by disappointing earnings results from Amazon [AMZN], which dragged down e-commerce stocks, including Etsy by 7.77% on 30 July.

Etsy – which connects sellers and buyers of handmade, craft and vintage products – places a strong emphasis on marketing initiatives to help promote its brand. However, its earlier soaring valuation and subsequent slide lower may show there’s limited upside for the Etsy share price.  

There’s no doubt that Etsy benefited from the COVID-19 enforced lockdowns, which facilitated millions of customers buying and selling from their homes, but is that tailwind now fading for the Etsy share price? What will the company’s second-quarter earnings tell us?

 

What could move the Etsy share price post-earnings?

Etsy’s sales growth leapt 107% in 2020 as the number of sellers and buyers grew 62% and 77%, respectively – the highest growth in eight years, according to hedge fund Khaveen Investments as reported by Seeking Alpha. While the company anticipates that the speed of growth is likely to taper after the pandemic boost, Etsy does still have several positives in its favour.

107%

Etsy's sales growth in 2020

  

One of these positives is Etsy’s ongoing commitment to improving buyers’ shopping experiences and supporting its sellers. This was evidenced back in 2016 after its acquisition of Blackbird Technologies for $32.5m to enhance its machine learning capabilities and enable a more personalised search experience. Some 88% of Etsy buyers surveyed recently admitted Etsy sold items they couldn’t find anywhere else, according to Khaveen Investments.

Etsy has pursued an acquisition strategy to boost its international reach and offer products across more niche markets. On 13 July, the company completed a $1.63bn deal for fashion marketplace Depop, which it said, “extends Etsy's opportunities further into the high-frequency apparel sector, specifically in the fast-growing resale space serving the Gen Z audience,” reports Investor’s Business Daily.

Canaccord Genuity analyst Maria Ripps said: “The Depop acquisition adds another differentiated and well-run platform to Etsy's expanding portfolio of brands.” Etsy also announced a deal for Elo7 in June, known as the ‘Etsy of Brazil’ for $217m. While these deals won’t affect Etsy’s second-quarter earnings, investors and analysts will be keen to know of its plans following these two major deals, as well as any changes to its full-year guidance and beyond, which could move the Etsy share price.

“The Depop acquisition adds another differentiated and well-run platform to Etsy's expanding portfolio of brands” - Canaccord Genuity analyst Maria Ripps

 

Ripps is bullish on the e-commerce firm’s prospects, saying: “While growth rates will certainly slow over the next few quarters given tougher comps and the drop off of stimulus and mask benefits, Etsy's marketplace grew into a much stronger platform over the past year.” Ripps added that its stellar performance means it has “a larger pool of profits available to reinvest in growth and expansion priorities” – a benefit already realised with the Depop and Elo7 acquisitions.

Heading into its second-quarter update, Ripps views the Etsy share price sell-off as an “attractive buying opportunity given management's ongoing execution with strategic initiatives along with secular tailwinds”.

 

What happened in last quarter’s earnings?

Etsy’s first-quarter update on 5 May showed the specialty retailer reported earnings per share (EPS) at $1.00, beating analysts’ consensus estimates of $0.84 by $0.16 and well ahead of the $0.10 recorded in the first quarter of 2020. The company’s revenue soared 141% year-on-year to $550.65m and compared favourably to the consensus estimate of $532.56m.

 

When is Etsy reporting second-quarter earnings?

At 5pm (ET) on 4 August.

 

What is Wall Street expecting?

Analysts are forecasting earnings of $0.63 per share for the upcoming quarter, with revenue at $525.2m. For the same quarter in 2020, earnings came in at $0.75, on lower revenue of $428.7m.

$525.2million

Etsy's forecasted Q2 revenue

  

According to Khaveen Investments, Etsy is “perfectly valued despite its strong revenue growth … as the stock price has already surged over 1,909% in the past five years.” As of 30 July, the Etsy share price had gain 1,232.58% in the past five years. The firm gives the retailer a hold rating with a target price of $175.90, according to Seeking Alpha.

Looking at the consensus view, the 15 analysts offering 12-month Etsy share price forecasts have a median target of $234.00. This represents a 27.51% increase from its close of $183.51 on 30 July. The current consensus among 17 polled investment analysts with CNN is to buy the stock, with 13 buy, one outperform, two hold and one sell rating.

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