Etsy Inc. shares dropped in extended trading Wednesday after the company rode higher seller fees to stronger first-quarter earnings and revenue than Wall Street had expected, but executives guided for a downturn in the current quarter.
Etsy ETSY, +8.75% reported first-quarter earnings of $ 86.1 million, or 60 cents a share, down from $ 1 a share in the same period a year ago. Revenue increased to $ 579.3 million from $ 551 million last year. Analysts on average expected earnings of 56 cents a share on revenue of $ 576 million, according to FactSet.
While the results from the first quarter were better than expected, executives’ forecast for the current quarter was not as strong, and executives noted that macroeconomic issues such as inflation and the end of COVID-19 lockdowns that boosted online spending will play a part.
“In the current macroeconomic environment, consumers have less disposable income and many more places to spend it, and while this creates a short-term headwind for sales on our marketplaces, we have very strong conviction in the long-term growth potential of our business,” Chief Financial Officer Rachel Glazer said.
Etsy executives guided for revenue of $ 540 million to $ 590 million in the second quarter on gross merchandise sales of $ 2.9 billion to $ 3.2 billion, after gross merchandise sales hit $ 3.3 billion in the first quarter. Analysts on average were expecting gross merchandise sales of $ 3.37 billion and net revenue of $ 627 million, according to FactSet.
“In a world of so many more choices, our guidance implies somewhere between a decline of low- to high-single digits for Etsy marketplace GMS year-over-year — retaining over 90% of the gains we have made over the past two years,” Chief Executive Josh Silverman said in a statement regarding Etsy’s guidance. “Despite the near-term uncertainty, we have ample reason to remain very optimistic for the long-term.”
Etsy shares fell more than 10% in after-hours trading immediately following the release of the results, after gaining 8.8% to $ 109.33 in the regular trading session. Amid a swoon in e-commerce activity and investing this year, Etsy had lost more than half its valuation heading into the print, falling 51.9% so far in 2022 as the S&P 500 index SPX, +2.99% declined 12.4%.
Etsy moved to answer any decline in online shopping with increases in the fees it charges for serving as a platform for buyers and sellers. That has led to an outcry by sellers using the platform, including a “strike” last month, but executives did not cite the blowback as a reason for its weaker forecast in Wednesday’s release, and analysts don’t believe it will have much of an effect.
“The company’s seller transaction fee increase of +150bps to 6.5% has been met
with protest among a small amount of Etsy sellers (~1%), which we believe will be immaterial on 2Q results and beyond,” Stifel analyst Scott Devitt wrote in a preview of e-commerce earnings on April 24, while maintaining a buy rating on Etsy stock but reducing his price target to $ 160 from $ 200 due to “shifting consumer spending habits, the discretionary nature of products on the marketplace and general macro uncertainty.”
Analysts posit that growth trends in online shopping early in the COVID-19 pandemic led to overvaluing e-commerce companies. However, after a massive adjustment in recent months, some believe the opposite may be true now.
“Investors over-extrapolated near-term trends at the peak of the pandemic, comments we recall ‘Discount rates are too high! Forecast growth rates are too low!’ In hindsight, some e-commerce share gained during the pandemic was inevitably given back as the economy reopened,” Devitt wrote. “Now we hear, ‘Discount rates are too low! Forecast growth rates are too high!’ We wonder whether the market is overextrapolating negative near-term trends, just as it did in the opposite direction on the way up.”