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How Analysts View Etsy’s Upcoming 4Q17 Results

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Etsy expected to outperform in 4Q17

Etsy (ETSY) is expected to report its 4Q17 results on February 27, 2018. The company’s 3Q17 adjusted earnings and sales beat analysts’ expectations. In 3Q17, Etsy reported adjusted EPS (earnings per share) of $0.21 and sales of $106.4 million, which beat the analysts’ estimate of $0.06 and ~$105.0 million, respectively.

Etsy’s sales rose 21.5% YoY (year-over-year), driven by its strategic initiatives. Its Markets revenues increased 11.2% to $42.4 million, and its revenues from Seller Services rose 30.6% to $63.4 million.

The company’s GMS (gross merchandise sales) rose 13.2% to $766.4 million, driven by the launch of new tools and features and increases in the number of active buyers and sellers. Active buyers increased 16.7% to 31.7 million while active sellers grew 10.8% YoY to 1.9 million.

For 4Q17, analysts expect Etsy’s revenues to rise 20.3% to $132.6 million. Its EPS is expected to reach $0.09 compared with -$0.19 reported in 4Q16.

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Mobile is the biggest driver

Mobile visits (web and app) comprised 67.0% of Etsy’s total visits, up 200 basis points YoY. Mobile web visits represented 47.0% of overall visits to the site. Turning to GMS, mobile visits were up 21.0% YoY and comprised 52.0% of the overall GMS.

Margins

Etsy’s gross margin fell 70 basis points to 65.8%, marred by higher fees related to Etsy’s payments platform. However, its efforts to improve efficiency and rationalize its cost structure resulted in operating expenses increasing 12.6%, which was much lower than the 28.7% increase reported in 3Q16. The company’s operating margin came in at ~7.0%, up from 3.1% reported in 3Q16.

In comparison, eBay (EBAY) reported a non-GAAP[1. generally accepted accounting principles] operating margin of 29.6%—almost the same as in 3Q16 as foreign exchange volatility nullified improved productivity.

Shopify (SHOP) reported an operating loss of $12.7 million compared with a $9.5 million loss reported in 3Q16 due to rising operating expenses.

Etsy’s higher revenues and lower expenses resulted in its adjusted EBITDA[2. earnings before interest, tax, depreciation, and amortization] increasing 74.4% YoY to $22.8 million in 3Q17.

Guidance

For fiscal 2017, Etsy (ETSY) expects its revenues to grow 18.0%–20.0%. Its adjusted EBITDA margin is expected to increase 16.0%–18.0%. Analysts expect its revenues to grow 19.9% in fiscal 2017.

In the next article, we’ll analyze Etsy from a valuation perspective.

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