Etsy Stock Tanks Post Q1 Results
05 May 2022 - 10:17PM
Finscreener.org
Shares of e-commerce
company Etsy (NASDAQ: ETSY)
are trading 12% lower in pre-market today after the company
announced Q1 results on May 4.
Etsy reported sales of $579.3
million and adjusted earnings per share of $0.60 in the quarter
ended in March. Comparatively, analysts forecast Etsy to report
revenue of $575.44 million and earnings of $0.60 in Q1. In the
year-ago period, Etsy’s sales stood at $529.77 million while
earnings were $1 per share.
So, why is Etsy stock trading
lower despite beating revenue estimates in Q1? Apparently,
investors were not impressed with the company’s guidance for Q2
where it forecast sales between $540 million and $590 million. Wall
Street expected the company to report revenue of $628 million in
the June quarter.
Let’s see what drove Etsy’s
results in Q1 and if it should be part of your equity portfolio
right now.
Esty reported a GMS of $3.3 billion in Q1
In Q1, Etsy reported gross
merchandise sales or GMS of $3.3 billion, an increase of 3.5% year
over year. The GMS is basically the total number of merchandise
sold on the Etsy platform in a particular period. It also confirmed
GMS for the Etsy marketplace stood at $2.8 billion, a decline of 2%
year over year.
Josh Silverman, Etsy’s CEO
stated, “Despite continued uncertainty and macroeconomic headwinds,
Etsy continues to rise to the occasion to deliver solid results
that show us maintaining most of the gains reported during the
extremely strong year-ago period.”
While growth has decelerated for
Etsy in Q1, the company has increased sellers by 100% on its
platform to 5.5 million while the number of buyers has increased by
80% to 89.1 million in the last two years. The expansion of the
Etsy ecosystem has allowed it to more than double GMS since Q1 of
2020.
In the March quarter, Etsy added
seven million buyers and now has close to 90 million buyers across
250 countries. Around 15 of the company’s product categories
attracted more than one million buyers last year while seven of
these categories had more than 15 million unique buyers.
ETSY aims to increase engagement and customer
base
The majority of Etsy’s active
buyers are located in the U.S. allowing the company to target other
markets for top-line growth. Its all-time buyer penetration is
below 50% in all seven core markets while these rates in the next
15 markets beyond the U.S. and U.K. are 80% lower.
In order to engage and retain
buyers, Etsy aims to focus on improving transparency for global
shipping procedures while also improving tooling functionalities
for sellers.
The company’s product development
expenses as a percentage of revenue rose to 15% in Q1 of 2022,
compared to 10% in the year-ago period. In 2021, product
development expenses totaled $272 million, compared to $97 million
in 2018. This year, these costs are on track to surpass $350
million.
In order to expand its customer
base, Etsy will also ramp up marketing spending this year. In Q1,
marketing spends accounted for 16% of sales, compared to 13% of
sales in the year-ago period.
The final takeaway
The ongoing pandemic acted
as
a massive tailwind
for Etsy and other e-commerce
players. However, as lockdown restrictions were relaxed, consumer
spending trends shifted towards other segments. But Etsy continues
to maintain prior-year GMS levels despite a challenging
macro-environment.
Right now Etsy is valued at a
market cap of $12.5 billion and the company is
forecast to end 2022 with
sales of $2.50 billion, valuing the company at a price to forward
sales multiple of 5x.
Analysts expect ETSY stock to
report adjusted earnings of $3.3 this year, indicating a
price-to-earnings ratio of 33x. While these multiples are
reasonable for a growth stock, Etsy might continue to move lower if
market sentiment remains bearish.
Etsy (NASDAQ:ETSY)
Historical Stock Chart
From Apr 2024 to May 2024
Etsy (NASDAQ:ETSY)
Historical Stock Chart
From May 2023 to May 2024