Investors were worried heading into the second-quarter earnings update from Etsy (ETSY), but it turns out those concerns were overblown.

Sure, the e-commerce platform posted a rare sales decline compared to soaring results a year ago. And management cautioned about a wide range of potential growth paths through the rest of 2022. But Etsy is still attracting new buyers and finding ways to raise the fees it charges sellers. These factors imply solid profitability through this volatile fiscal year.

Let's dive in and see if this stock is a buy based on the latest earnings.

Sales trended lower in comparison to a strong 2021

As expected, Etsy endured weaker sales trends than investors have seen in recent quarters. Sales volume fell by less than 1% but was up nearly 3% after accounting for currency exchange rate swings.

Investors had been worried that a weakening consumer spending environment would hurt the business, but Etsy avoided that fate. Instead, the company attracted 6 million new buyers to protect the positive momentum from earlier phases of the pandemic. "Etsy has maintained most of our pandemic gains," CEO Josh Silverman said in a press release. Etsy's core marketplace segment has been up 141% since the same period in mid-2019.

Raising fees

The company's rising transaction fees, which it charges sellers for its middleman services, helped offset the impact of higher expenses. Adjusted profit margin rose to 28% of sales from 26% a year ago. Many industry peers, including eBay (EBAY), have been posting weaker profit results on this basis as growth slows.

Etsy's net income declined mainly because management is still investing aggressively in its growth initiatives. These include improvements to the shopping and selling experiences, which have helped the company continue attracting buyers and sellers even as the wider e-commerce market slows.

Sliverman and his team said the Q2 profits demonstrate that Etsy can deliver strong earnings even as the company focuses on growth.

Looking ahead

The best news for investors might have come from Etsy's new outlook. Management sees sales volume landing between $2.8 billion and $3 billion in the third quarter as reported revenue lands as high as $575 million. That result would mark a quick return to accelerating sales growth for the business and would help set Etsy apart from many of its e-commerce peers who are struggling to keep expanding.

The consumer discretionary business will still take a hit if consumer spending slows further or if a recession pushes unemployment higher. But Etsy today can reasonably target another year of solid growth. Investors can also take solace in the fact that the platform is attracting more buyers at a time when peers are struggling on this score.

Those market share gains imply that the business has a strong value proposition to many customers, even as they return to more normal shopping patterns around their homes.

Etsy's competitive advantage relies in part on its ability to market unique products to buyers. The growth trends through the first half of 2022 suggest that the business is finding plenty of ways to lean on that asset to push sales and earnings higher.