Shares of Etsy (NASDAQ: ETSY) were up 9.8% on Thursday to close at $104.92 as the online marketplace delivered upbeat Q2 results. Even Guggenheim analyst Seth Sigman was positive about the company’s encouraging Q2 results and retained his Buy rating on the stock. The company calls itself the global marketplace for unique and creative goods.
Etsy’s Q2 Results
Etsy generated revenues of $585.1 million in Q2, a growth of 10.6% year-over-year driven by higher transaction fees. Etsy’s revenues surpassed analysts’ estimates of $556.86 million. Diluted earnings in the second quarter came in at $0.51 per share, meeting Street expectations but declining 25% year-over-year. This drop in net income was a result of higher employee compensation-related costs as its employee headcount went up by nearly 70% year-over-year.
Etsy CEO, Josh Silverman, commented, “Despite facing headwinds caused by macroeconomic and geopolitical factors, we believe the improvements we’ve driven in customer experience across the Etsy marketplace and our House of Brands, coupled with continued focus on our ‘Right to Win’ strategy, will enable us to unlock the enormous long-term opportunities we see ahead.”
Etsy’s Gross Merchandise Sales
Etsy’s marketplace Gross Merchandise Sales (GMS) were $2.6 billion in Q2, a decline of 6% year-over-year. The company stated that the fall in GMS was a result of a challenging macro environment, including delayed reopening due to the pandemic, geopolitical events, and currency fluctuations.
However, the Q2 marketplace GMS was still up 141% versus the Q2 of FY 19, an encouraging data point for analyst Sigman.
Etsy’s Buyers’ Data Is Stabilizing
Etsy added 6.4 million new buyers in Q2, a nearly 50% jump from before the pandemic. But Sigman pointed out that the growth rate for new buyer adds still decelerated from 7.1 million new buyer adds in Q1.
The analyst believes that this slowing growth rate indicates that “buyer trends have also started to stabilize.”
Etsy’s Q3 Guidance
Etsy anticipates third quarter revenues in the range of $540 million to $575 million, while GMS is expected to be in the range of $2.8 billion to $3 billion. The adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin is projected to be around 26% in Q3.
Silverman commented on this Q3 outlook, “We see multiple scenarios possible for the remainder of 2022, but all still point to very healthy profitability throughout.”
Analysts’ Take on ETSY
Summing it up, analyst Sigman concluded, “…we remain more positive with solid GMS and customer retention, improving churn, and multiple P&L levers supporting EBITDA (including upside from fees and advertising, which we view as a testament to the model).”
The analyst also raised his price target on the stock to $105 from $101. Sigman’s price target implies that the stock is priced in at current levels.
Wall Street analysts are cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 12 Buys and eight Holds. The average Etsy price target of $115.50 implies an upside potential of 10.1% at current levels.
Conclusion
Etsy seems to be well positioned to ride out the current macroeconomic volatility.
Etsy scores an eight out of 10 on the TipRanks Smart Score system, indicating that the stock is highly likely to outperform the market.
The TipRanks Smart Score system is a data-driven, quantitative scoring system that analyses stocks on eight major parameters and comes up with a Smart Score ranging from 1 to 10. The higher the score, the more likely the stock will outperform the market.
