What happened
Shares of Etsy (ETSY +0.73%) turned sharply higher on Tuesday, surging as much as 16.3% -- even as the broader market dipped. As of 12:35 p.m. ET, the stock was still up 15.9%.
The catalyst that sent the e-commerce platform higher was better-than-expected financial results.
NYSE: ETSY
Key Data Points
So what
Etsy reported third-quarter revenue of $594 million, up 11.7% year over year, though gross merchandise sales (GMS) of $3 billion slipped 3.3%. This resulted in a diluted loss per share of $7.62.
That massive loss requires explanation, however. Etsy took a one-time, noncash, goodwill impairment charge of $1 billion related to its purchases of U.K.-based social commerce platform Depop and Brazilian online marketplace Elo7. Etsy acquired the companies in 2021 for $1.6 billion and $217 million, respectively, so the write-downs suggest it overpaid during the lockdown-led e-commerce boom, which eventually fizzled. Excluding the impact of the impairment charge, Etsy's EPS was $0.58.
To put all this in context, analysts' consensus estimates forecast revenue of $565 million and earnings per share of $0.37.
The report was still something of a mixed bag, as active sellers of 7.4 million declined 1%, while active buyers of 94.1 million fell roughly 2%. This suggests that e-commerce growth is still weighed down by comps from the lockdown-led surge at the height of the pandemic.
Now what
Furthermore, for the upcoming fourth quarter, Etsy's guidance was stronger than some expected. The company is guiding for revenue of $740 million at the midpoint, which would represent year-over-year growth of 3.2%. For context, analysts' consensus estimates for the quarter were forecasting revenue of $741.6 million and EPS of $0.71, so investors were pleased that its guidance was in the ballpark.
Regarding the important holiday sales season, Etsy was clear that the economic uncertainty might impact purchasing decisions but pointed out that Etsy's differentiated offerings positioned them to win no matter what happens. A recent survey found that 87% of buyers say that "Etsy has items I can't find anywhere else."
That simple fact gives the company an edge. At 4 times next year's sales, Esty is a little pricey, but for long-term investors who don't mind a little risk, Etsy remains a buy.
