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Why Etsy, Inc. Stock Is Soaring

By Daniel Sparks – Feb 28, 2018 at 12:17PM

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Etsy just crushed expectations. Here's what investors should know.

What happened

Shares of online marketplace Etsy (ETSY 2.58%) soared on Wednesday, rising as much as 24.1% following the company's fourth-quarter earnings release. The stock is up about 21% at the time of this writing.

Positive sentiment toward the stock from investors on Wednesday is likely a reflection of Etsy posting accelerating growth across a range of key metrics, as well as posting higher-than-expected revenue, adjusted earnings per share, and guidance.

Employees sitting at a picnic table outside Etsy's offices

Etsy headquarters. Image source: Etsy.

So what

Etsy reported fourth-quarter revenue of $136.3 million, up 23.6% year over year and ahead of a consensus analyst estimate for revenue of about $133 million. Earnings per share swung from a loss of $0.19 in the year-ago quarter to a profit of $0.15 when adjusted to exclude a one-time benefit from the U.S. Tax Cuts and Jobs Act of 2017. Analysts, on average, were expecting adjusted earnings per share of $0.09.

Importantly, gross merchandise sales (GMS) surpassed $1 billion for the first time and increased at an accelerated rate. GMS increased 17.8% year over year, to $1.02 billion. This is up significantly from 13.2% year-over-year GMS growth in Q3.

Helping fourth-quarter profitability was Etsy's record adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 25.6%, up from 13.9% in the year-ago quarter. 

Now what

Management's optimism for 2018 is unmistakable. The company guided for revenue to rise 21% to 23% in 2018, up from year-over-year growth of 20.9% in 2017. Further, based on the midpoint of management's guidance range for year-over-year growth in GMS, Etsy also expects an acceleration in GMS in 2018. The company said it expects GMS to rise 14% to 16% in 2018, up from 14.5% in 2017.

"We are well-positioned for a strong 2018 and our revenue and adjusted EBITDA guidance demonstrate that we believe we can sustain and build upon our 2017 progress," said Etsy CFO Rachel Glaser.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool recommends Etsy. The Motley Fool has a disclosure policy.

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