If Monday’s 15% gain for Etsy Inc (NASDAQ:ETSY) is any indication, the market seems to be expecting something quite impressive when the handcrafted goods sales firm posts its second-quarter results after the closing bell rings on Tuesday.
Actually, ETSY stock had some help. Citi initiated coverage of Etsy with a “buy” rating, and Jim Cramer chimed in, saying Etsy is “for real.”
Still, the fact that so many investors responded so bullishly to the analyst coverage and commentary suggests it wasn’t hard for the market to believe. Perhaps it was just the nudge traders needed to expect the e-commerce outfit to post a profit rather than the forecasted loss, just like it did in the first quarter of the year.
Not Everyone Agrees
The timing of Citigroup’s newly issued bullishness on ETSY stock isn’t likely to be a coincidence — it would be something of a trophy for Citi to be able to say it saw a solid quarter looming. The Citi report explained, “consensus revenue estimates are far too conservative … We expect Street estimates to reset higher throughout the year.”
Citi also set a target price of $14 for Etsy shares, 40% better than Friday’s closing price, and still 21% higher than the value of ETSY stock after Monday’s surge.
The Street’s Jim Cramer was similarly stoked about the company’s potential upside — particularly following Citi’s call — commenting:
“The reason I’m excited about [the call] is because this is a company that initially people felt was just over-hyped, overvalued … Anyone who sold on Etsy knows that this thing is for real … It’s a great market. They fixed up their website, and I think it’s a great little company.”
Citi and Cramer aren’t exactly part of an optimistic crowd when it comes to Etsy’s upside, however. Of the six analysts following the stock before today, three collectively deem it a “hold,” and set an average target price of $9.92.
The highest target price had been $12 per share, just a bit higher than the current price near $11.60.
Etsy Earnings Preview
Tuesday’s report could separate the men from the boys, so to speak. That is, Citi and Cramer think the first quarter’s surprising swing to a profit was an omen, while most others look at it as a fluke. There’s not a great deal of gray area.
As of the latest look, analysts were expecting the company to lose a penny per share on $80.5 million worth of revenue. Both would be notably better than year-ago levels of a loss of four cents per share and sales of $61.4 million. But, perhaps more importantly, both would be worse than the first-quarter profit of one cent per share and revenue of $81.8 million.
It seems unlikely any company would take a sequential step back after recently developing a critical mass of sorts. But, if any company could do so in just a few weeks, it may well be Etsy. The first quarter’s top line (and subsequently, the bottom line) may have been boosted by a then-new requirement of its vendors to use the company’s internal checkout system.
Etsy has also backed off on marketing initiatives in the meantime, and is losing sellers at an alarming pace.
Bottom Line for ETSY stock
One of the chief complaints Etsy shareholders voiced about the first quarter’s numbers was the company’s unwillingness to raise guidance. And that was even after a handful of logistical and financial reconfigurations were put in place to shore up the business model. A model that didn’t appear viable for the long haul, mind you, as engagement has been slowing. The market was left wondering if the best Etsy could do is just hang on for as long as it could.
In that light, Tuesday evening is a make-or-break moment for ETSY stock … more so than most other quarterly reports this earnings season.
An earnings beat (and better yet, a measurable profit) in addition to greater gross merchandise sales on top of increased guidance could go miles with the market. More of the same losing grind with no hope for better days, however, could leave egg on Cramer’s and Citi’s faces. Monday’s big rally may end up only making any disappointment-driven selloff that much more dramatic.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
