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2 Must-See Earnings Reports This Week

By Daniel Sparks – Oct 31, 2021 at 9:45AM

Key Points

  • Etsy's sales momentum has slowed following staggering growth in 2020.
  • Cloudflare's top-line growth accelerated in Q2.
  • Etsy reports earnings on Wednesday, and Cloudflare reports its results the following day.

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These two growth stocks will have a lot of eyes on them this week.

Tech giants dominated earnings season last week, with the likes of Microsoft, Alphabet, and Amazon all reporting their latest quarterly results. This week, however, will include younger Wall Street darlings like handmade good marketplace Etsy (ETSY -2.01%) and network software specialist Cloudflare (NET -4.68%).

With both of these companies growing rapidly recently, many investors will likely be watching their quarterly updates closely. Can the two growth stocks live up to investors' expectations?

Ahead of the two tech companies' earnings report, here's a preview of some of the key items investors will want to watch when their updates go live.

A person looking at charts on a laptop.

Image source: Getty Images.

Etsy: Facing off against tough comps

After a wildly successful 2020 and early 2021, Etsy's top-line growth has slowed dramatically recently. The growth last year and into the beginning of 2021 was fueled by surging e-commerce adoption as people were sheltering at home due to COVID-19, as well as the success of facemask sales on its platform.

It's safe to say that Etsy is up against a tough comparison in its third quarter of 2021. Third-quarter 2020 revenue soared 102% year over year to $451.5 million. More recently, growth has come down to earth as the company goes up against tough comps from last year. Second-quarter 2021 revenue increased 23% year over year. 

For the company's third quarter of 2021, management guided for revenue to increase 13.5% year over year to between $500 million and $525 million. 

It's safe to say that any worse-than-expected performance from Etsy in its third quarter could rattle investors. Capturing investors' optimism going into the report, shares have risen 22% over the past month.

Etsy will release its third-quarter results after market close on Wednesday, Nov. 3.

Cloudflare: Can its strong top-line momentum persist?

Expectations are particularly high for Cloudflare going into its quarterly report. The company's shares have skyrocketed this year, climbing 156%. Nearly half of this gain has occurred in the last 30 days alone.

In the company's second quarter of 2021, revenue surged 53% year over year to $152 million. Its dollar-based net retention rate -- a measure of retained spend from existing customers -- was at a record high of 124% during the period.

Management guided for strong third-quarter results, evidenced by management's view for a meaningful sequential uptick in revenue. Specifically, Cloudflare guided for revenue of $165 million to $166 million. Given the stock's monstrous move higher recently, investors are likely hoping the company's actual revenue comes in well above this guidance range.

One key metric Cloudflare investors will likely take a close look at is the number of large customers (customers who spend more than $100,000 annually with Cloudflare) the company gained during Q3. Last quarter, Cloudflare added a record 140 large customers. Did the company keep up this momentum in Q3?

Cloudflare plans to report its third-quarter financial results after market close on Thursday, Nov. 4. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Cloudflare, Inc., Etsy, and Microsoft. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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