Etsy Beats Q3 Estimates On Robust Online Demand

Online marketplace Etsy reported strong revenue and earnings growth for the third quarter and exceeded analysts’ expectations. Despite upbeat results, ETSY shares are down 1.7% in pre-market trading today.

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Etsy (ETSY), which connects buyers and sells through its online platform, generated revenue of $451.5 million in 3Q and surpassed analysts’ estimate of $413 million. The top-line grew by an impressive 128% year-over-year, reflecting the spike in e-commerce business amid the pandemic. The company’s marketplace revenue grew 141% to $342 million while services revenue increased 95% to about $110 million.

Strong revenue growth helped boost EPS to $0.70 in 3Q20 from $0.12 in 3Q19. Analysts were expecting EPS of $0.60. The company’s bottom-line also benefited from gross margin expansion resulting from a shift to offsite ads.

E-commerce has spiked since the pandemic as consumers are hesitant to venture out and shop at physical stores amid rising COVID-19 cases. In 3Q, Etsy’s marketplace saw 14.8 million new buyers and reactivated buyers (those who haven’t purchased in a year or more).

GMS or Gross Merchandise Sales (a key metric which indicates the dollar value of items sold on Etsy’s marketplace) surged over 119% to $2.63 billion. Since the pandemic, Etsy has been experiencing a huge demand for masks. About 11% of the overall GMS was from mask sales. (See ETSY stock analysis on TipRanks)

Looking forward, Etsy’s CEO Josh Silverman stated, “We’re focused on driving seller growth and bringing joy to buyers this holiday season. So far, October GMS growth trends for both Etsy and Reverb have been similar to what we experienced in September. Looking further out, 2021 is extremely hard to predict and we will be lapping enormous 2020 growth.”

Etsy expects 4Q GMS to grow by between 65% to 85% year-over-year to reach $2.7 billion to $3.1 billion. It expects revenue growth in the range of 70% to 90% to $459 million to $513 million in the holiday season quarter.

Following the earnings release, Stifel analyst Scott Devitt reiterated a Buy rating for ETSY and increased the price target to $170 from $160. In a research note to investors, Devitt stated, “Growth has shown no signs of weakness QTD [Quarter-to-Date] despite declining mask sales, and we believe momentum will continue through the balance of 4Q as Etsy ramps marketing spend and continues to invest in product enhancements.”

ETSY shares have surged by a whopping 216% year-to-date and the average analyst price target of $154.56 indicates further upside potential of 10.7% over the coming months. The Street is bullish on ETSY with a Strong Buy analyst consensus based on 15 Buys versus 1 Sell.