Etsy (ETSY) Crafting Some Nice Gains As Q2 Results Highlight The Staying Power Of Its Platform

3:17 pm Thursday, July 28th, 2022

Etsy (ETSY), the operator of a homemade craft and goods marketplace, is up sharply after reporting better-than-expected Q2 results and issuing inline Q3 revenue guidance. A former high-flyer during the depths of the pandemic, ETSY has fallen on harder times lately as people increasingly return to brick-and-mortar stores. In fact, during the earnings conference call, the company singled out reopening headwinds and pandemic-related factors as the biggest obstacles so far in 2022. However, ETSY’s encouraging earnings report also indicates that business is still healthy, leading investors to believe that the near 60% collapse in shares this year is overdone.

Although revenue and gross merchandise sales (GMS) growth has significantly tapered off from the triple-digit rates seen in 2020 and early 2021, it’s notable that ETSY is still growing despite facing challenging yr/yr comparisons. In Q2, revenue increased by 11% and GMS was up by 3% on a constant currency basis, on top of last year’s growth of 24% and 13%, respectively.

There were a couple other key items from the report that caught our attention.

Thanks to its asset-light business model and variable cost structure, ETSY’s adjusted EBITDA margin expanded to 28% from 26% in the year-earlier quarter. These same attributes helped ETSY to generate strong operating cash flow of $128.5 mln.

Like many other tech companies, ETSY is planning to slow the pace of hiring for the remainder of 2022. After increasing its headcount by 70% from last year — partly due to its acquisitions of Depop and Elo7 — ETSY’s plan to dial back wage expenses should provide a bottom-line boost. CEO Josh Silverman expects the company to remain very profitable throughout the year, even as it contends with macroeconomic volatility and uncertainty.

The main takeaway is that while ETSY is far-removed from its booming days during the pandemic, business remains healthy as it has retained most of the GMS gains it achieved during that time. In contrast to many pandemic high-flyers, ETSY continues to consistently surpass analysts’ quarterly expectations. Based on the company’s solid performance, it’s safe to say that the nosedive in shares since last fall was overdone.