Etsy (NYSE: ETSY) heads into its upcoming earnings report with an encouraging story: shoppers are spending more on its marketplace, and sales growth has improved. Now investors want to know whether that progress can continue through the holiday shopping season.
That makes this report about more than beating an earnings estimate. Etsy needs to show that its efforts to attract shoppers, encourage repeat purchases, and make products easier to find are building a stronger business.
There are reasons for optimism. But with the recovery still developing, Wall Street will have plenty to examine beneath the headline numbers.
What Wall Street Expects
Analysts estimate about 81 cents per share on revenue of $680.5 million. Management has already provided some useful targets. Management previously forecast third-quarter gross merchandise sales of $2.53 billion to $2.58 billion, representing growth of approximately 4% to 6% from a year earlier. It also projected an adjusted EBITDA margin of 28% to 30%, a profitability measure that excludes interest, taxes, depreciation, amortization, and certain other expenses.
Etsy’s second quarter provided a better starting point.
Revenue reached $668.3 million, up 6.2% on a continuing-operations basis. Looking specifically at the Etsy marketplace and excluding Reverb from the previous year’s comparison, revenue increased 9.3%. Etsy marketplace gross merchandise sales rose 7.5% to approximately $2.58 billion. Gross merchandise sales, or GMS, measures the value of merchandise sold through the platform. That differs from Etsy’s revenue, which comes from fees and services associated with running the marketplace.
Source: Etsy
The third-quarter report should help establish whether the company’s recent improvement is becoming a dependable trend. Results near the upper end of management’s sales outlook would strengthen that argument.
Are More Shoppers Coming Back?
The buyer numbers may offer the clearest test. The company reported about 87 million active buyers at the end of the second quarter, down 0.4% from a year earlier. Meanwhile, spending per active buyer over the preceding 12 months increased 2.8% to $124.
That is encouraging, but it leaves room for improvement. Higher spending helps, while a growing customer base would give the recovery broader support.
Investors should also look at what is driving those larger purchases. Management said higher average order values were the biggest contributor to second-quarter merchandise-sales growth, with higher listing prices the main factor. Purchase frequency remained slightly below year-earlier levels, although the decline was easing.
For the next report, stronger repeat purchasing would be particularly welcome. A shopper who returns regularly creates more opportunities for sellers and gives Etsy additional chances to generate fees.
Profits and Buybacks Also Matter
Etsy is also reshaping the business around its main marketplace. The company completed its Depop sale to eBay in July and announced a new $2 billion share-repurchase authorization in August. It also outlined a workforce reduction of roughly 12% as part of its reorganization. Investors will want to understand how those changes affect expenses, investment priorities, and future earnings.
Buybacks can help earnings per share by reducing the number of shares outstanding. However, that makes it useful to examine total profit alongside per-share results. A stronger earnings figure carries more weight when the underlying business is improving too.
The same applies to margins. Better profitability is encouraging, particularly if Etsy can achieve it while continuing to attract customers and support sellers.
The Holiday Outlook Could Decide the Reaction
The biggest question may be what happens next. Investors will be listening for management’s assessment of holiday demand, promotional spending, and shoppers’ willingness to purchase discretionary items.
A solid third quarter could lose some shine if the company sounds cautious about the months ahead. Conversely, improving buyer trends and a confident outlook could make the recovery more convincing.
For Etsy, the opportunity is straightforward: keep shoppers engaged, give them reasons to return, and turn those visits into profitable growth. This earnings report should show how much closer the company is getting.
