Etsy (ETSY) stock cratered after it reported second-quarter earnings and revenue that topped estimates, but its guidance missed expectations as more consumers return to physical retail stores. Is Etsy stock a buy?
The company provides an online e-commerce platform where creators of arts and crafts, vintage items and other unique goods go to sell their products.
Like most other companies during the early stages of the pandemic, Etsy warned the virus was dramatically disrupting business trends. However, as things turned out, Etsy was a big beneficiary of the pandemic. Stuck-at-home shoppers turned to Etsy and other online retailers like Amazon (AMZN) and Walmart (WMT) for both essential and non-essential items.
As the virus caused dramatic changes to daily living, Etsy sellers moved quickly to help consumers deal with the rapidly evolving needs. This included the creation of face masks at a time when they were hard to get. The masks alone accounted for hundreds of millions in Etsy sales.
Covid-19: What Happens Now?
However, with Covid-19 infections falling and restrictions lifted, the changes are now buffeting the same internet companies that initially benefited from the crisis. The pandemic led to a surge in sales for many. The question is, what happens now? That uncertainty showed up in Etsy’s first-quarter earnings report, and also its second-quarter earnings report as well.
The company reported adjusted earnings of 68 cents a share, down 9% but above analyst estimates for 63 cents. Revenue climbed 23% to $528.9 million, topping views for $526 million. Gross merchandise sales rose 13% to $3.04 billion, in line with estimates. Etsy stock fell 10% in reaction but has since regained all that ground.
“Underlying growth and buyer cohort trends in our core Etsy marketplace remain encouraging as the world reopens and consumer spending patterns shift,” Chief Financial Officer Rachel Glaser said in the company’s conference call with analysts. “Despite a decline in new buyer growth, which we anticipated as we emerge from the pandemic, in the second quarter we still added 8 million new buyers to the Etsy marketplace — nearly double the number of new buyers acquired in the second quarter of 2019.”
Analyst Views On Etsy Stock
Following the Etsy earnings report, Jefferies analyst John Colantuoni maintained a buy rating on Etsy stock and price target of 220.
“Similar to Amazon (AMZN), we think Etsy is facing headwinds from increased mobility as pandemic restrictions ease,” he said in a note to clients.
“In addition, Etsy has a track record of beating guidance and is likely to experience accelerating growth in the back-half as comparisons ease,” he wrote in a note to clients. Despite missing expectations, he said, Etsy’s guidance was “impressive.”
Canaccord Genuity analyst Maria Ripps also maintained a buy rating on Etsy and price target of 270.
For its third quarter, Etsy expects revenue in a range of $500 million to $525 million and gross merchandise sales in a range of $2.9 billion to $3 billion. Analysts had projected revenue of $527 million and gross merchandise sales of $3.02 billion.
Etsy Stock Jumps After Its IPO
The company held its initial public offering in April 2015, pricing shares at 16 and raising $267 million. Etsy stock popped 72% on its first day of trading. But it was downhill from there as Etsy stock gradually dropped to its all-time low of 6.04 over the next nine months.
But after a management reshuffling and the development of new products, Etsy stock returned to growth mode. Etsy changed its advertising platform. It made meaningful strides in search and discovery by making the homepage more personalized and dynamic. It also made progress improving its mobile app and transferred computing operations to the cloud.
On July 13, Etsy announced the completion of its acquisition of Depop in a deal valued at $1.63 billion. The Depop acquisition “extends Etsy’s opportunities further into the high frequency apparel sector, specifically in the fast-growing resale space serving the Gen Z audience,” the company said in the press release.
“The Depop acquisition adds another differentiated and well-run platform to Etsy’s expanding portfolio of brands,” Ripps said in a note to clients.
Also, Etsy bought Elo7, known as the “Etsy of Brazil,” for $217 million.
“These acquisitions give Etsy exposure to two large and rapidly expanding markets,” she said.
Etsy Stock Technical Analysis
A technical analysis of Etsy stock is a key component of determining whether it’s worth buying.
The IBD Stock Checkup Tool shows that Etsy has an IBD Composite Rating of 90 out of a best-possible 99, meaning the stock currently tops 93% of all other stocks in terms of key performance metrics and technical strength. The best stocks will often rate 98 or 99 at the time they launch a big price run.
Its Relative Strength Rating is a 90. The rating tracks market leadership by showing how a stock’s price movement over the past 52 weeks measures up against that of all other stocks in IBD’s database. The best stocks will often rate over 90 at the time they launch a big price run.
Etsy has an Accumulation/Distribution Rating of C+. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A grade of A signals heavy institutional buying. The lowest rating of E means heavy selling. Think of the C grade as neutral.
Is Etsy Stock A Buy?
Etsy stock is currently not a buy. It’s working on a long-term consolidation, with a buy point of 251.96. It’s a second-stage base, but in reality it’s probably a third-stage base if the Covid-19 correction is counted.
The relative strength line has been moving sideways but is steady. The line measures a stock’s strength against all stocks in the S&P 500. The RS line is the blue line in the chart shown. Typically, the RS line of the strongest stocks is either confirming or leading a stock’s price into new high ground.
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Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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