Could Etsy’s 4Q17 Margins Impress?



Margin expectations

Etsy (ETSY) remains focused on driving its margin growth through cost cutting and improving the efficiency of its operations. In 4Q17, analysts expect the company to report a gross margin of 66.1%, compared with 66.4% in 4Q16. The company’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) are expected to be $22.8 million, a significant improvement over the $15.3 million reported in 4Q16. Etsy’s revenue growth and cost cutting (due to headcount reduction) are likely to boost its EBITDA.

Etsy expects its adjusted EBITDA margin to widen to 16.0%–18.0% in 2017, while analysts expect it to have an adjusted EBITDA margin of ~17%. Its adjusted EBITDA margin in 2016 was 15.7%.

The company expects a $20 million reduction in operating expenses in 2017 (more in the latter half) due to higher operational efficiency. In 2018, the company expects a $35 million reduction in operating expenses.

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Etsy’s 3Q17 margins

In 3Q17, Etsy’s gross margin narrowed 70 basis points to 65.8%, impacted by higher fees related to Etsy’s payment platform. Nevertheless, its efforts to improve operational effectiveness and streamline its cost structure led to its operating expenses increasing 12.6%, compared with 28.7% in 3Q16. The company’s operating margin was ~7.0%, up from the 3.1% it reported in 3Q16. Its adjusted EBITDA margin expanded 650 basis points to 21.4%.

Peer performance

In 4Q17, Shopify (SHOP) had adjusted operating income of $11.6 million, compared with -$0.8 million in 4Q16. In 4Q17, eBay (EBAY) had an adjusted operating margin of 31%, marking a 100-basis-point contraction YoY. Its margin was impacted primarily by foreign exchange rates. In the next article, we’ll discuss what analysts have to say about Etsy.


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