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How Is Etsy’s Bottom Line Performance in 2018?

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The first three quarters of 2018

In the trailing 11 quarters, Etsy (ETSY) has beaten EPS estimates six times, either missing or matching estimates in the remaining quarters.

In the first quarter of 2018, Etsy recorded adjusted EPS of $0.10, beating analysts’ estimate of $0.06. However, its adjusted EPS came in significantly higher than the break-even earnings it reported in the same quarter of the previous year.

In the second quarter, the company’s adjusted EPS were $0.03, below analysts’ estimate of $0.04 and reflective of a 70% fall YoY (year-over-year). In the third quarter, its EPS of $0.15 were better than the $0.07 expected by analysts but down 28.6% YoY. Its earnings saw a tougher YoY comparison owing to a tax benefit related to an employee stock benefit, which negatively impacted Etsy’s bottom line performance.

For the fourth quarter, analysts expect Etsy to report adjusted EPS of $0.21, reflecting a rise of 23.5% YoY.

Wayfair (W) has missed estimates in all three quarters of 2018 so far. Its bottom line remains under pressure due to higher costs.

Similarly, Overstock’s (OSTK) expenses are ballooning and are proving to be a drag on its bottom line. It has also missed estimates in all three quarters of 2018.

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Etsy’s margins

Driven by higher revenue, Etsy’s gross margin improved 160, 80, and 300 basis points, respectively, YoY in the first, second, and third quarters.

Etsy’s operating expenses increased 2.3% in the first quarter but decreased 4.5% in the second quarter. In the third quarter, its operating expenses increased 35.3%. The company is investing in marketing—especially in digital marketing and migration to the cloud. In 2018, it expects to witness cloud migration expenses at the higher end of its earlier guided range of $10 million–$15 million. Nonetheless, cloud migration will likely reduce its data center infrastructure expenses.

Due to operational efficiencies, Etsy’s adjusted EBITDA is on a rising trend. Its third-quarter adjusted EBITDA was $34.0 million, higher than the $22.8 million it reported in the same quarter of the previous year. For 2018, its adjusted EBITDA margin is expected to be 22%–23% compared to its earlier guidance of 21%–23%.

 

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