Etsy Got Punished For Being Cautious But It Needs To Work Harder To Preserve Its Human Touch Superpower

Last week, Etsy Inc ETSY shares plunged more than 13% after the small but worthy Inc AMZN e-commerce rival issued a weak guidance that overshadowed its better-than-expected second quarter results. 

Etsy’s Second Quarter Results

Revenue rose by 7.5% YoY as sales amounted to $628.9 million, topping Refinitiv’s consensus estimate of $619 million but its gross merchandise volume contracted a bit less than 1% to roughly $3 billion, exceeding Refinitiv’s consensus estimate of $2.98 billion. Moreover, services revenue that includes advertising rose about 21% YoY which is an impressive rate. Although revenue overall grew modestly, the big picture is that there are more active buyers and sellers as Etsy management revealed. Yet, net income contracted about 15.3% YoY to $61.9 million with adjusted EPS per share amounting to 45 cents, again topping Refinitiv’s consensus estimate of 43 cents. 

Etsy’s Weaker Than Expected Third Quarter Guidance

Revenue is guided between $610 million and $645 million and therefore, could fall short of the $632 million that Refinitiv’s survey of analysts forecasted. GMS, a measure of total number of goods sold, is expected within the range between $2.95 billion and $3.1 billion, below the $3.04 billion that Refinitiv’s analysts expected. Etsy CFO Rachel Glaser spoke about the return of student loan payments and the elimination of child tax credits as the weights that are expected to bring down third quarter’s revenue, as the macroeconomic environment remains challenging. 

Etsy’s Human Touch Is A Superpower That Not Even Amazon Has

The greatest strength of this e-commerce company is its merchant base that is made of small businesses and self-proprietors. These retailers have the ability to personalize their offerings, both products and services, in a way that even Amazon cannot match. This is why even the e-commerce titan like Amazon does not scare Etsy as its ability of personalization cannot be matched by bigger rivals.

Moreover, compared to Shopify Inc SHOP, Etsy has a storefront made of handmade, vintage and rare items that are difficult to find elsewhere. According to a survey that Etsy conducted, 87% of buyers said that the platform has items that they were not able to find elsewhere. However, these items don’t come cheap and perhaps this is why challenging macroeconomic conditions hit Etsy more than Shopify. The good news is that Etsy barely scratched the surface of its estimated $2 trillion addressable market.

AI hype

Shopify recently introduced a suite of AI tools through Shopify Magic that answers common questions that merchants pose about their business. Etsy has also joined the AI wagon, as Silverston notified investors that this technology is being used to enhance almost every customer touchpoint. 

But recent news show that Etsy might not be working hard to make things seamless for its merchants as recently some vendors started boycotting the platform over its payment reserve system that the platform puts in place to keep the market safe and cover any potential refunds. It certainly does not help that Amazon has a much lower level of reserve at around 3% until the dispute is resolved. So, Etsy does need to work on preserving its superpower.

All in all, financial results say Etsy had a great second quarter that simply got overshadowed with its cautious guidance that is justified in such times of uncertainty and looming recessionary fears that don’t have a favorable effect on customers, or more precisely, their wallets.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.

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