Etsy (ETSY -1.60%) falls despite strong second-quarter results. Booking Holdings (BKNG -0.70%) posts a wider loss in the second quarter, but shares rise on higher travel demand. Wayfair's (W -3.94%) second-quarter profits surprise Wall Street (in a good way). In this episode of MarketFoolery, Motley Fool analyst Ron Gross analyzes those stories and discusses online shopping habits.
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This video was recorded on Aug. 5, 2021.
Chris Hill: It's Thursday, Aug. 5. Welcome to MarketFoolery, I'm Chris Hill. With me today for the first time in awhile, Mr. Ron Gross, thanks for being here.
Ron Gross: Always a pleasure, Chris. I'm sorry, it's been awhile. Things get busy here and there, but I'm always happy to be here.
Hill: You're busy, you're like, unlike me. You actually have people you manage, you have a team you manage.
Gross: It is my pleasure to do so.
Hill: That is the right thing to say out loud into a microphone. Earning season rolls on. We've got stocks for your home, for travel. We're going to start with retail. Etsy's second-quarter profits and revenue came in higher than expected. Revenue growth year over year was 23%, which seems pretty good, and yet it really wasn't good enough for Wall Street because shares of Etsy are down 6%.
Gross: Is anything really ever good enough for Wall Street? Sometimes, I guess.
Hill: Every now and then it is, this is one where I think before I even let you weigh in on what you thought of the quarter, I think it's important to get a grip on the guidance that they gave because I haven't looked closely enough to wonder whether or not, the guidance they gave for the rest of the year merits this type of drop today.
Gross: OK. We can skip to the end, I'd like to save guidance for last, but I'm going to help you out here and talk about guidance. One sentence from the transcript that management noted was that comps get tougher as they progress through 2021. There is a signal to investors that things are going to be "anniversarying" very exciting quarters from last year, and things are going to get tougher. Especially considering the absence of masks, which was a huge driver of Etsy revenue last year, and the absence of stimulus checks. These are all things that are banging up against demand, and when you compare it to the really strong numbers of last year, it gets everybody a little bit worried. I find it interesting because you should realize, obviously if you're looking at an online retailer that there's "anniversarying" of pandemic results that are going to happen, and as long as there's no impairment of the business and things look on track, then you really shouldn't be that concerned.
In fact, when you think about someone like Etsy, they got to pull forward 38 million new buyers in 2020. The fact that active buying growth is slowing now, which is what Wall Street is also focused on, that's bothering people. It shouldn't bother you because they got to 38 million people in a year earlier than they probably would have. Money earlier is always better than money later. That's a phrase I like to live by. As long as the pull-forward doesn't impact your business later on, there's nothing wrong with it happening earlier. There's a lot of folks, investors focusing on the guidance and the fact that active buying growth is slowing. But I think things look pretty good here. For the quarter, consolidated gross merchandise sales, GMS, for short, up 13%. That's fine in this environment. If you remove the impact of masks, Etsy's stand-alone business grew 31% year over year. Again, strong results on a two-year basis, that's 153% growth if you remove masks. Things are fine here, revenue up 23%. They did add 8 million new buyers. Again, that's less than people would like to see because they're used to seeing that huge growth from last year. I think that's unrealistic to expect that. Active buying on a trailing-12-month basis was up 22%. Merchandise sales per active buyer up 22%. That's actually a nice offset to the fact that active buyer growth is slowing. You saw net income tick up a bit to about 2%. They're making a lot of moves. They're improving the buying experience, they're improving customer service. They made two acquisitions that just closed, one in the resale space, vintage space, Elo7, which is known as the Etsy of Brazil, so expanding internationally as well. I don't think the stock should be really taking a hit on this. I don't see anything that's troubling.
Hill: I just hope nobody is surprised. I mean, just don't tell me any investor is surprised for Etsy or any as you indicated, any online retailer that they're coming up on tough comps. If you don't already know that, then you are clearly not paying attention. For better or for worse, the whole thing of masks and people buying masks off of Etsy, I don't know if you've looked at the headlines recently, but masks sales might be ticking back up over the next like six months.
Gross: That is so true. Yes, exactly. Have you ever personally bought anything on Etsy?
Hill: Not a mask, but sure I've bought stuff on Etsy a few times. Yeah, it's a great experience and it's stuff you can't really find anywhere else. I mean, I think that's part of what's compelling about this business.
Gross: If you're looking for something that you can't readily find somewhere else, is Etsy your first shot or is eBay your first shot?
Hill: I will go to Etsy before I go to eBay.
Hill: But I will probably go to Target.com before I go to either of them, depending on what the item is. Just because I think, and I've said this before, I think Target really did an amazing job over the last year and a half of investing in their digital platform and just making it so much more seamless with their stores.
Gross: Yeah, great. Mark Tritton getting it done and then leaving.
Hill: Exactly. Booking Holdings' loss in the second quarter was wider than expected, but revenue looked good. Demand for travel is on the rise and shares of bookings up 7% as well today.
Gross: Again, this is like the other side of the Etsy coin. Nobody should really be surprised that there was pent-up demand for travel and it's coming back now. That's showing up in the numbers. Quarterly revenue more than tripled, easily beating expectations. Second-quarter gross travel bookings up 852%. The number of room night reservations grew 458% year over year, and 59% sequentially from the first quarter. All really strong numbers. It's mostly because of strong demand in Europe, and then the U.S. as again, people start traveling and vacationing. Asia, where vaccinations were lowest and cases were highest, was the least recovered region. I think once that rebounds you'll start to see even stronger numbers.
Overall, this was the first positive year-over-year growth since before the start of their pandemic. Again, not surprising. Interestingly, demand for accommodations in homes versus hotels is increasing as people are still looking to stay away from the crowds and getting that more of an Airbnb-type experience, if you will. Company still lost money, but it's narrowing to about $100 million was their adjusted net loss. I think delta, as you mentioned earlier, the delta variant, that's a wild card here for the next several months, at least, I think if people start to go back down a little bit into lockdown mode, lockdown might be too big a word there, but I know I'm back to wearing my masks in places I wasn't. I'm more hesitant to go into restaurants, I'm more hesitant maybe to travel. It will be interesting to see if I'm indicative of the rest of the Booking customer base.
Hill: When you think about guidance that we get from companies, where does Booking Holdings fall in the travel space for you? Because obviously, we as investors get a lot of information. It seems from the airlines in terms of the individual airlines, them as a category in terms of flights, in terms of TSA check-ins, all that things. It would seem on the surface like Booking Holdings gives you not only insight into air travel, but lodging as you indicated, as well as car rentals?
Gross: For sure it would, if they were forthcoming with a lot of granularity, and a lot of good guidance. I'm not seeing that from a lot of companies right now, including Booking. But sure, when you book of vacation two months from now or airfare two months from now, it's a good leading indicator of what things may look in the next quarter or the next two quarters, and anything we can glean from these companies where you buying now, and use later, inform us as to how the rest of the year will look.
Hill: I have more questions on travel, but then it would turn into an episode of Industry Focus.
Gross: What, I have a similar question to my Etsy question. Are you a person that books travel, or hotels through these booking Expedia-type websites, or do you go directly to the hotel?
Hill: I have no brand loyalty when it comes to travel. I'm not a member of Bonvoy or whatever Marriott is calling their rewards programs. I am very single-focused on, I have this trip, I will look at different airlines, I will look at different websites, including individual hotel websites, I'll use Expedia, anything. None of them have won me over in the way that other businesses, and other categories have won me over.
Gross: I think you're probably more normal than me. I tend to go directly to Marriott, for example, because I am part of the Bonvoy program, and you get the points, the rewards, and you're trying to work the system, and get the best deal you can, so I do have some loyalty there, and obviously companies like Marriott hope more and more people do. I typically do not go, I'll go to Kayak, and check air prices, and things like that, but I typically won't use Bookings or Expedia, but I think I'm in the minority there.
Hill: I will never use Trivago, because that guy in the commercials it's just way too annoying.
Gross: I haven't seen that guy lately.
Hill: Maybe word got through. Wayfair's second-quarter profits were much higher than expected. Shares of Wayfair rose more than 8% this morning. You take these together, and it's a little confusing because on the one hand, we've got people leaving their homes, travel demand is up, but you look at Wayfair, and clearly people are buying stuff for their homes as well.
Gross: I mean, a great two-year run helped obviously by the pandemic. Nothing special happened this year at all until today. These numbers clearly beat expectations. The results were not great when compared to pandemic-level numbers, but again, we should know that, we should be expecting that. I don't think Wayfair can be blamed for that. I don't see any material weakness in the business. These numbers look fine, especially when you realize you're comparing it to numbers that were outsized for a particular reason. When you see revenue down about 10%, that's compared to last year's at the same time, that's not a surprise to me. If you look at those revenue numbers, they are above pre-pandemic run rates, but since we're anniversarying the really strong growth from 2020 when everyone was focusing on their homes, the numbers are hard to beat. But they do look nice when you compare them to pre-pandemic levels. U.S. revenue down 15%; the one pocket of strength. International revenue, not as big a piece of the pie here, but it was up 16%. There's a little bit of strength there. Number of active customers reached 31 million, an increase of almost 20% year over year, that's a good indication to me. Repeat customers placed 75% of total orders, that's compared to 67%, again, a positive metric, and finally, net revenue per active customer increased by almost 9%. Some solid metrics that indicate the business is fine. You saw gross margins fall a bit, about 1.5%%. But if you go back two years to pre-pandemic levels, those gross margins are up significantly. Again, I don't think they can be blamed for the situation that we find ourselves in. Adjusted earnings were down 25% again, not surprising to me, not troubling to me. I think the Wayfair story remains intact.
Hill: It seems like every quarter we talk about Wayfair I'm reminded of the fact that they've got these other brands under their umbrella. Maybe at some point, they go the route of like we saw with Tapestry where they just we're more than just Wayfair, and they come up with some convoluted name [laughs] that's an umbrella for all of them. It seems like, no disrespect to Perigold, Joss and Main, Birch Lane, it really seems like wayfair.com is the driver of this business.
Gross: I think for sure that's the case. They do give us some color, especially more so on the call than in the press release, on some of the other brands, and where they sew pockets of strength, and where they're focusing, and where they want to expand to. But I think for the most part, you are completely correct about the business, and you're also correct with respect to their communication about the business. They are not going to spend that much time talking about the things that roll up into the bigger business.
Hill: Ever bought anything off Wayfair?
Gross: I bought it because of the pandemic. I bought two stand-up heaters like the umbrella-looking type of heaters. Before there was a rush on them, and it was impossible to get, so we were able to see some friends outside during the winter months. Interestingly, they've rusted over, and all of the screws have fallen out, and I had 1-800-JUNK come and haul them away, so there you go.
Hill: I guess Wayfair didn't sell covers to protect these devices.
Gross: They have covers. One would have to use the cover one purchases in order to protect against the elements. They sat in my garage, unfortunately.
Hill: User error.
Gross: I should not be blaming Wayfair.
Hill: Ron Gross, great talking to you, thanks for being here.
Gross: You too, Chris, thank you.
Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. This show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening, and we'll see you on Monday.