Etsy Reports Earnings on Wednesday. Here’s What to Expect.


By William Philip

  • Order Reprints

  • Print Article

Text size

Etsy is acquiring Elo7 and Depop, both online retailers based outside the U.S.


Gabby Jones/Bloomberg

The pressure is on for

Etsy

to deliver Wednesday when it reports second-quarter earnings. And the artisanal crafts online retailer believes it can—confident that its pandemic growth spurt is here to stay.  

For the second quarter, executives are forecasting revenue of $493 million to $536 million, representing a 15% to 25% increase year over year, but below the first-quarter’s $551 million.

Analysts have taken the company officials at their work, expecting

Etsy

(ticker: ETSY) to report on the high end of their guidance. Wall Street expects revenue of $525 million, up from $429 million a year ago, and earnings per share of 63 cents, up from 75 cents.

The executives also believe the company can retain most of the gross merchandise sales gains amassed during the pandemic. For 2020’s first quarter, which ended shortly after the start of the lockdown, Etsy reported gross merchandise sales of $1.35 billion. This year’s first-quarter brought in $3.14 billion in gross merchandise sales, and the second-quarter projection isn’t far off—$2.8 billion to $3.1 billion.

Maintaining gross merchandise sales gains will come down to retaining high-spending customers. In the first quarter, the company reported a 205% year over year increase in buyers who made six or more purchases and spent over $200 in the past 12 months. Though just 9% of buyers, the group accounts for 40% of gross merchandise sales. A key concern is whether those consumers would prefer the retail shopping experience, which may be more conducive to impulse purchases.

The online e-tailer has made a couple of big purchases of its own. In late June, Etsy announced it would pay $217 million in cash for Brazil-based Elo7, a peer-to-peer e-commerce marketplace. A few weeks earlier Etsy acquired Depop, a U.K. fashion reseller platform, for $1.63 billion.

Wedbush Securities analyst Ygal Arounian expects the acquisitions to dilute margins in the short run, but he believes the deals will expand the company’s international presence and allow it to capitalize on new e-commerce trends.

While e-commerce companies have had a strong year so far, investors are closely monitoring how they are navigating the changing economic landscape. Last week, for example,

Amazon

beat earnings expectations but just fell short of revenue expectations, prompting investors to wipe 7.4% off the company’s market capitalization the next day.

Arounian believes the increase in Covid cases could create favorable conditions for digital commerce to grow, but the reopening could limit upside in the third quarter.

Even if Etsy tops earnings and revenue expectations, the question remains whether that will be good enough to override concerns that e-commerce platforms will cede ground to retailers as the economy reopens.

Shares of

Etsy

stock were up 0.2%, to $189.29, in afternoon trading Tuesday; the

S&P 500

was up 0.5%.

Write to editors@barrons.com

Related post