What happened

Shares of Etsy (ETSY -0.15%) were up 9.7% as of 1:52 p.m. ET on Thursday after the e-commerce company reported better-than-expected results for the second quarter.

Revenue grew 10.6% year over year to $585 million, while net profit dropped 25% due to increases in headcount relating to last year's acquisitions of Depop and Elo7. Its growth pace has decelerated from a year ago, but it was still better than investors feared amid the weakening economic backdrop. 

So what

Overall, the Q2 results might not seem to justify such a positive reaction by the market. Etsy's gross merchandise sales fell 0.4% year over year; its revenue growth was the result of a fee increase on marketplace transactions. 

Still, it's all about expectations. Some investors appear to be bargain hunting, and the stock is still down by 52% year to date. 

Plus, given that the U.S. economy contracted in the first two quarters of 2022, investors weren't sure how Etsy would maintain its pandemic-driven sales volumes -- but it did. It's encouraging that Etsy has retained nearly all the active buyers it had a year ago when economic conditions were better. 

Now what

Some of Etsy's revenue growth deceleration was also due to its difficult year-over-year comparisons, but the company will face easier comparisons over the next year. That might have been a small factor that helped lift the stock Thursday.

However, the third quarter will be challenging. Management's guidance calls for revenue of between $540 million and $575 million, which would amount to growth of only 5% year over year at the midpoint of the range. 

Long term, Etsy has a massive opportunity to expand internationally into markets where its penetration rates now are significantly lower than they are in the U.S. and U.K.