shares are falling sharply as investors process the company’s forecast for much slower growth in the June quarter as the online marketplace for hand-crafted goods begins to lap the spectacular growth it saw during the height of the Covid-19 pandemic.
(Ticker:ETSY) had a lot of things going for it during the pandemic. The website saw surging transactions in handcrafted masks. Fat government stimulus checks boosted consumer spending. Buyers and sellers alike flocked to the site amid the widespread shutdown of physical retail stores.
But the trends are reversing. According to the Centers for Disease Control, one-third of the country has been fully vaccinated – and 57% of Americans 18 or older have had at least one shot. People feel safer. They are buying fewer masks. And the stimulus is fading. That’s all generally good news, except for Etsy shareholders.
Late Wednesday, Etsy posted strong March quarter results, with revenue of $55.0.6 million, up 141.5% and topping the Wall Street analyst consensus forecast of $530 million. Likewise, profits of $1 a share beat the Street consensus of 88 cents. Gross merchandise sales were $3.1 billion, up 132%, active sellers were up 67%, and active buyers were up 90%.
But the company projects a sharp slowdown ahead. Etsy expects June quarter revenue of $493 million to $536 million, up 15% to 25% from a year ago, with gross merchandise sales of $2.8 billion to $3.1 billion, up 5% to 15% from a year ago. At the midpoint of the forecast range, sales would be down 10% from the previous quarter. The revenue guidance at the midpoint was actually nicely ahead of the Street consensus at $494 million – but the forecast nonetheless served to remind investors that the surge in activity seen on the platform in 2020 is not going to continue.
on Thursday repeated his Hold rating on Etsy shares, while trimming his target price to $205, from $220. He notes that Etsy had “another impressive quarter,” continuing to benefit from “a favorable environment for e-commerce supported by pandemic tailwinds and frequent fiscal stimulus.” But he points out that Etsy now faced extremely difficult comparisons, including 146% growth in gross merchandise sales in the June 2020 quarter, as well as declining sales for masks, which were 14% of sales in that period. He’s also anticipating “normalizing consumer behavior as vaccination rates rise in the company’s key markets.”
Jason Helfstein maintained his Outperform rating, but reduced his target price on the stock to $200, from $240. “Adjusting for mask sales, comps and stimulus checks, gross merchandise sales growth did not slow from Q4, with second quarter guidance assuming at most 400 basis points slowdown on apples-to-apples basis,” he writes. “While investors were disappointed with guidance, we view the 84 million buyer base as having the ability to scale to materially higher levels.”
Likewise, Wedbush analyst Ygal Arounian repeated his Outperform rating on Etsy shares, while chopping his target price to $204, from $250. He writes that June quarter guidance includes “a slight benefit from stimulus,” and the ongoing lift from the economy still not fully reopen.
“While it will still be a few more quarters until we understand the full implications of the re-opening, our first indications are that Etsy is holding on to its Covid gross merchandise sales gains, an important accomplishment in our view, on the heels of triple-digit growth,” the analyst wrote. “While the reopening continues to drive some uncertainty around consumer spending shifts, the first indicators for Etsy and its positioning in a post-Covid world are a material step forward in our view.”
Etsy shares on Thursday are down 14%, to $158. The stock is down 37% since peaking above $251 on an intraday basis in early March. The S&P 500 is up nearly 11% year-to-date.
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