What happened
Shares of Etsy (ETSY -0.86%) surged by 40.7% in November, according to data provided by S&P Global Market Intelligence. With this surge, shares of the e-commerce company are down just 37.1% year to date.
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So what
The company reported a mixed set of earnings for its fiscal 2022's third quarter. On one hand, revenue grew 11.7% year over year (YOY) to $594.5 million, with gross profit increasing by 10.9% YOY to $420 million. However, expenses ballooned during the quarter, more than quadrupling YOY to $1.37 billion, resulting in Etsy reporting a net loss of $963 million compared to a net income of $90 million a year ago. Despite the rise in the top line, gross merchandise sales (GMS) dipped by 3.3% YOY to $3 billion, while active sellers and buyers edged slightly downward YOY to 7,396 and 94,149, respectively.
Investors are justifiably concerned that growth may be stalling for the e-commerce platform as the pandemic surge slowly wears off. However, the recent Black Friday sales may have altered investors' expectations as sales cracked the previous record, touching $9.1 billion this year in what was an impressive start to the holiday shopping season. This new record, which was 2.3% higher YOY, came in all the more surprising, considering the effects of inflation and surging interest rates threatening to dampen consumer demand.
What's more, analysts from financial services firm BTIG surveyed a sample of Etsy buyers who indicated they intend to spend more on the platform than stated in an earlier survey in October. This implies that Etsy's fortunes may be turning up, with GMS possibly rising in the fourth quarter and beyond as buyers flock back after holding off.
Now what
Etsy has guided for GMS to fall between $3.6 billion and $4 billion for its fourth quarter, slightly lower than the GMS of $4.2 billion recorded in the fourth quarter of 2021. With the recent Black Friday numbers and BTIG's analysis, investors could be in for a positive surprise if the same buyers start spending more. The company has an advantage over other e-commerce platforms in that the bulk of its customers found items they could not find elsewhere. Etsy's wide range of unique, handcrafted items gives it a competitive edge that should see its GMS and revenue continue rising once inflation starts to abate.
