Etsy, sorry, they told you this would happen

Etsy – Sorry, but they told you this would happen

Someone recently posted wondering how this could have happened, and what did he miss. Here’s what I wrote in my notes back in May, after the last quarter’s results were announced. I can’t remember if I posted it too, but it was clear already what was going to happen.

May 2021 – My Take

Etsy’s revenue growth rate is a pleasure boat about to go over Niagra Falls. Look at the table. All the cheers about its 142% revenue growth come because its revenue is being compared to that miniscule pre-Covid revenue of $228 million of the first quarter of last year.


**2019: - 	169	181	198	270		 818**
**2020:-		228	429	451	617		1725**
**2021:-		551**

Think of it this way: what happens in next quarter when their revenue is compared against Covid-boosted Q2 2020 revenue of $429 million? Are you ready for a shock? Well, if you compare this quarter’s revenue with that $429 million, that up 142% becomes up 28%!!! …(551/429 = 1.28)

So what are they guiding to for next quarter? It’s $493 million to $536 million. That’s $514.5 million at the midpoint. It’s $36 million LESS than revenue this quarter! It’s up 20%!!! They are trying to prepare their stockholders for the awful truth:

We currently expect Q2 2021 GMS to decelerate along with the rest of e-commerce as we lap the tremendous 2020 growth rates…”

But everyone looks at the 142% growth from this quarter and says “Oh, Etsy is doing great!”

Granted, they are sandbagging. Last quarter they guided to $524.5 at the midpoint and $536 for the top of the range for this quarter, and they beat the midpoint by $26.5 million and beat the top of the range by $15 million.

They are obviously seeing slowdown, as the midpoint of guidance for next quarter is actually $10 million LOWER than their midpoint of guidance was for this quarter, although 2nd quarter is normally lots better than 1st quarter.

So, allowing for sandbagging, it’s evident that they will come in next quarter at up 25% to up 30%. That’s going to be quite a shock for stockholders who haven’t been paying attention. How will that 28% growth feel to them after cruising along at 140%??? A word to the wise!

Well, back to the present. They came in at $528 million of revenue and missed even my guess at up 28%, as they in at up 23% year-over-year. But even that is a mirage. They aren’t growing revenue at 23%. You have to look at sequential. Revenue is contracting, not growing! In the June quarter, which should be up from the March quarter, they came in at DOWN $23 million sequentially. It’s all over folks.

Saul

Links to the Knowledgebase for this board is in the Announcements panel that is on the right side of every page on this board. (It’s in three parts)

121 Likes

I believe you did post it in one of your monthly updates about slowing Revenue Growth of Etsy. And you saw this coming. Your ability to identify slowing Revenue trends is amazing. Thanks to you and all that contribute to this Amazing Board. It has completely changed my investing mindset and strategy.

6 Likes

Hey Saul,

One minor correction to this post. You stated:

Someone recently posted wondering how this could have happened, and what did he miss.

The post I think you’re referencing was #78639 (https://discussion.fool.com/i-try-to-leave-emotions-out-the-door…) regarding Fiverr Int (FVRR) results (not ETSY’s) that came out around the same day as ETSY’s. I’ve never owned FVRR so was not following, but from that post, and as others have pointed out, there was no way to see that one coming, that seemed to be because of management’s poor read (or overly optimistic view) of their upcoming business. And that stock dropped almost 25% after the release.

I don’t think there have been any posts regarding ETSY on this board (I assume most had already gotten out), and their results weren’t looked at as poorly as FVRR’s by the market as, like you say, it was a known deceleration. Their stock went UP 6% the day of their afternoon release, then was down around 14% after hours, but rebounded some the next trading day to just down 7%, so about a wash from the day before the earnings release. Tells me the market was expecting the deceleration so no great harm to a portfolio that was holding ETSY. I’m not saying ETSY is a good or bad investment going forward (I’m not currently holding any, although I did own it during the pandemic).

But you are of course correct in that anyone that was paying attention to ETSY numbers and guidance should have known they were not going to be able to continue with the triple digit growth they showed during the pandemic year.

12 Likes

Hey Saul… Someone recently posted wondering how this could have happened, and what did he miss. … The post I think you’re referencing was #78639 (https://discussion.fool.com/i-try-to-leave-emotions-out-the-door…) regarding Fiverr Int (FVRR) results (not ETSY’s) that came out around the same day as ETSY’s.

Nope Foodles, I was right and you were wrong. (You should have just asked me.) I was responding to the post about ETSY (#78626), and the guy writing it couldn’t figure out what had happened.

https://discussion.fool.com/feedback-on-analyzing-and-conviction…

Saul

27 Likes

Saul said:

Nope Foodles, I was right and you were wrong.

Haha! And so you were. Congrats on that, I should have known better, my apologies! :joy:

(Feel free to remove this post if needed, but I figured since I questioned your post publicly, I should publicly acknowledge my mistake.)

15 Likes

Here’s what I wrote in my notes back in May, after the last quarter’s results were announced. I can’t remember if I posted it too, but it was clear already what was going to happen.

Greg nicely told me that I did indeed post this warning on the board back on May 6th, #77095, https://discussion.fool.com/etsy39s-growth-going-over-a-cliff-34…

Best,

Saul

14 Likes