Etsy Q2: Slowdown in New Buyers; Shares Crash 13.8%

Shares of Etsy, Inc. (ETSY) were down 13.8% in the extended trading hours on Wednesday after the company reported second-quarter results, which reflected a deceleration in new buyer growth. Notably, only 8 million new buyers were added in Q2 versus 9.6 million in Q1 and 11.5 million a year ago.

The decelerated growth trends resulted from the reopening of the world markets after recovery from the pandemic and a shift in consumers’ shopping preferences from online to physical stores. (See Etsy stock charts on TipRanks)

Furthermore, below expectations third-quarter revenue guidance indicated a slowdown in revenue growth going forward, increasing investor concerns.

Etsy mainly provides a two-sided marketplace platform called Etsy.com connecting millions of buyers and sellers around the world. The company was one of the biggest beneficiaries of the pandemic last year when ecommerce witnessed a massive boom.

During the reported quarter, revenues increased 23.4% year-over-year to $528.9, million slightly exceeding consensus estimates of $524.84 million.

Segment-wise, Marketplace revenues increased 19.1% to $395.5 million, whereas Services revenues rose 38% to $133.4 million.

Additionally, adjusted earnings of $0.68 per share declined 9.3% year-over-year but beat analysts’ expectations of $0.63 per share.

In other positive news, consolidated Gross Merchandise Sales (GMS) grew 13.1% year-over-year to $3 billion, whereas Etsy marketplace GMS surged 14.2% to $2.8 billion.

Encouragingly, Etsy CEO Josh Silverman commented, “We’re seeing measurable results from deepened investments in our ‘Right to Win’ strategy, which provides a clear roadmap for product and marketing investments to make it easier to shop on Etsy, build top of mind awareness, and solidify buyer trust.”

Furthermore, commenting on the two strategic acquisitions completed last month, Silverman stated, “Depop and Elo7 further extend our total available market opportunities in resale, a large and fast-growing apparel segment, and in Brazil, Latin America’s largest ecommerce market. In addition to driving growth in our core Etsy.com marketplace, we are now focusing on integrating these exciting businesses into our ‘House of Brands’.”

Due to the uncertainty from the impact of the ongoing COVID-19 pandemic on macroeconomic conditions, Etsy refrained from providing guidance for the full-year 2021. However, the company provided estimates for the third quarter of 2021.

Third-quarter revenues are forecast to be in the range of $500–$525 million, versus the consensus estimate of $524.91 million, and reflecting 13.5% year-over-year growth. Also, the company forecasts GMS in the range of $2.9–$3 billion implying a year-over-year growth rate of 12.5%.

Following the Q2 results, Loop Capital Markets analyst Laura Champine reiterated a Buy rating but decreased the price target to $220 (8.8% upside potential) from $240 on the stock.

Consensus among analysts is a Strong Buy based on 10 Buys, three Hold, and one Sell. The average ETSY price target of $218.25 implies 19.2% upside potential to current levels.

ETSY scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.