Why Etsy Stock Surged on Thursday

What happened

Shares of Etsy (ETSY 9.73%) were up 9.7% as of 1:52 p.m. ET on Thursday after the e-commerce company reported better-than-expected results for the second quarter.

Revenue grew 10.6% year over year to $585 million, while net profit dropped 25% due to increases in headcount relating to last year’s acquisitions of Depop and Elo7. Its growth pace has decelerated from a year ago, but it was still better than investors feared amid the weakening economic backdrop. 

So what

Overall, the Q2 results might not seem to justify such a positive reaction by the market. Etsy’s gross merchandise sales fell 0.4% year over year; its revenue growth was the result of a fee increase on marketplace transactions. 

Still, it’s all about expectations. Some investors appear to be bargain hunting, and the stock is still down by 52% year to date. 

Plus, given that the U.S. economy contracted in the first two quarters of 2022, investors weren’t sure how Etsy would maintain its pandemic-driven sales volumes — but it did. It’s encouraging that Etsy has retained nearly all the active buyers it had a year ago when economic conditions were better. 

Now what

Some of Etsy’s revenue growth deceleration was also due to its difficult year-over-year comparisons, but the company will face easier comparisons over the next year. That might have been a small factor that helped lift the stock Thursday.

However, the third quarter will be challenging. Management’s guidance calls for revenue of between $540 million and $575 million, which would amount to growth of only 5% year over year at the midpoint of the range. 

Long term, Etsy has a massive opportunity to expand internationally into markets where its penetration rates now are significantly lower than they are in the U.S. and U.K. 

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Etsy. The Motley Fool has a disclosure policy.

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