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Etsy (ETSY) Down 8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Etsy (ETSY - Free Report) . Shares have lost about 8% 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 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 2021 earnings of 62 cents per share, which surpassed the Zacks Consensus Estimate by 24%. However, the bottom line was down 11.4% from the year-ago quarter.

Revenues advanced 17.9% year over year to $532.4 million. Notably, the figure beat the Zacks Consensus Estimate of $518.5 million.

Year-over-year revenue growth was driven by accelerating Marketplace and Services revenues. Solid momentum across both buyers and sellers contributed well. Strengthening gross merchandise sales (“GMS”) were other tailwinds.

The company remains optimistic about its acquisitions of Reverb, Depop, and Elo7. Its growing investments across marketing channels remain positives.

Top Line in Detail

Marketplace revenues were $395.5 million (74.3% of total revenues), up 15.8% from the year-ago quarter. This was driven by solid momentum across buyers. The company witnessed the addition of 11.1 million new and reactivated buyers on its Marketplace platform in the reported quarter, out of which 7 million were new ones. Strong traction across habitual and repeat buyers, which grew 65% and 35%, respectively, contributed well.

Services revenues were $136.9 million (25.7% of total revenues), which rose 24.6% on a year-over-year basis. Solid momentum across sellers, owing to the robust Etsy Ads program, remained a major positive.

Quarter in Detail

Etsy’s active buyer base grew 37.8% from the prior-year quarter to 95.9 million. The active seller base stood at 7.5 million, which was up 102.7% year over year.

Notably, GMS of the company was $3.11 billion, which rose 17.9% year over year.

The ETSY marketplace’s GMS was at $2.7 billion, up 12.4% from the prior-year quarter.

However, GMS from paid channels, which accounted for 17% of total GMS, contracted 200 basis points (bps) year over year.

Operating Details

In third-quarter 2021, the gross margin was 71.1%, which contracted 230 bps year over year.

Total operating expenses were $295.03 million, reflecting a year-over-year increase of 38.4%. However, the figure, as a percentage of revenues, expanded 820 bps from the year-ago quarter to 55.4% in the reported quarter.

The operating margin was 15.7%, contracting from 26.2% in the year-ago quarter.

Balance Sheet & Cash Flows

As of Sep 30, 2021, cash and cash equivalents totaled $619.4 million, which decreased from $2.05 billion as of Jun 30, 2021. Short-term investments were $197.4 million, down from $430.7 million in the previous quarter.

Long-term debt stood at $2.274 billion at the end of the third quarter, up from $2.273 billion at the end of the previous quarter.

The company generated $90.9 million in cash from operations in the reported quarter compared with $121.7 million in the prior quarter.

Free cash flow in the reported quarter stood at $82.7 million compared with $116.4 million in the last reported quarter.

Guidance

For fourth-quarter 2021, it anticipates total revenues between $660 million and $690 million, suggesting year-over-year growth of 10% at the mid-point.

GMS is expected to be $3.9-$4.1 billion, indicating growth of 12% at the mid-point from the year-ago quarter’s reported figure.

The adjusted EBITDA margin is expected to be 26%.

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 an average Growth Score of C, however its Momentum Score is doing a bit better 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 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.


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