A month has gone by since the last earnings report for Etsy (ETSY Quick QuoteETSY - Free Report) . Shares have added about 3.9% in that time frame, underperforming 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 catalysts.

Etsy's Q3 Earnings & Revenues Beat Estimates

Etsy delivered third-quarter 2020 earnings of 70 per share, which surpassed the Zacks Consensus Estimate by 12.9%. Further, the figure significantly jumped from 12 cents in the year-ago quarter.

However, the bottom line declined 6.7% from the prior quarter.

Revenues advanced 128.1% year over year and 5.3% sequentially to $451.5 million. The figure also outpaced the Zacks Consensus Estimate of $419 million.

The top-line growth was driven by accelerating Marketplace and Services revenues. Moreover, solid momentum across both buyers and sellers contributed well. Additionally, strengthening gross merchandise sales (“GMS”) were tailwinds.

Further, the coronavirus pandemic-induced e-commerce boom continued to act as a major tailwind for the company. It experienced a rising number of new buyers and strengthening mask sales during the reported quarter.

Furthermore, benefits from the Reverb acquisition contributed well to the company’s third-quarter results.

Also, the expanding global footprint of Etsy Payments, and solid momentum across Etsy Ads and Offsite Ads were positives.

The company remains optimistic about its investments across marketing channels. Further, advancing search algorithms, robust Etsy Ads and integration with Etsy Payments remain positives.

Top Line in Detail

Marketplace revenues were $341.6 million (75.7% of total revenues), which went up 141.2% from the year-ago quarter. This was driven by strong momentum across buyers. The company witnessed 9.6 million new buyers and 5.2 million reactivated buyers on its Marketplace platform during the reported quarter.

Services revenues were $109.9 million (24.3% of total revenues), which surged 95.1% on a year-over-year basis. Solid momentum across sellers, owing to the robust Etsy ad program that experienced growth of 106% year over year, remained a major positive.

Quarter in Detail

Etsy’s active buyer base grew 55.4% from the prior-year quarter to 69.6 million. The active seller base stood at 3.7 million, which was up 42% year over year.

Notably, GMS of the company was $2.6 billion, which surged 119.4% year over year.

Accelerating mask sales, which generated $264 million in GMS (11% of GMS), owing to the ongoing pandemic, were tailwinds. Excluding mask sales, GMS would have stood at $2.2 billion, up 93% year over year.

GMS from other categories such as homewares and home furnishings, jewelry and accessories, craft supplies, apparel, paper and party supplies, and beauty and personal care was $772 million, $380 million, $312 million, $254 million, $109 million and $84 million, which were up by 126%, 61%, 114%, 59%, 37% and 164% on a year-over-year basis, respectively.

Additionally, strong GMS from paid channels, which accounted for 19% of total GMS remained major positive.

Operating Details

In third-quarter 2020, gross margin was 73.4%, which expanded 820 basis points (bps) year over year, owing to the shift to Offsite Ads.

Further, total operating expenses were $213.1 million, reflecting an increase of 85.7% year over year due to costs related to the shift to Offsite Ads and increasing marketing expenses. However, the figure as a percentage of revenues contracted to 47.2% from 57.9% in the year-ago quarter.

Per the company, operating margin was 26.2%, expanding significantly from 7.2% in the year-ago quarter.

Balance Sheet

As of Sep 30, 2020, cash and cash equivalents totaled $1.1 billion, which significantly improved from $677.5 million as of Jun 30, 2020. Short-term investments were $379.6 million, up from $365.7 million in the previous quarter.

Long-term debt stood at $1.05 billion at the end of the third quarter, up from $803.2 million at the end of the previous quarter.

Guidance

For fourth-quarter 2020, the company anticipates total revenues between $459 million and $513 million, suggesting year-over-year growth of 70-90%.

Further, GMS is expected to be $2.7 billion-$3.1 billion, indicating growth of 65-85% from the year-ago quarter.

Adjusted EBITDA margin is expected to be 24% to 27%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 8.07% due to these changes.

VGM Scores

Currently, Etsy has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward 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.