Etsy Inc (ETSY) may be the go-to online marketplace for homemade goods, but its tenure as a publicly traded company has been anything but impressive.
The company’s shares, which went public back in April, followed an all-too-often-seen pattern: The first day saw extraordinary gains, followed by months of miserable underperformance. After shooting up 88% on its first day of trading, going from $16 to $30 a share, ETSY stock hasn’t been the same since.
Etsy shares closed at $10.90 per share on Friday.
So, with third-quarter ETSY earnings on tap for Tuesday after the bell, what can investors expect?
Guidance and GMV Are Key
Analysts are looking for Etsy to lose 6 cents per share on revenue of $66.17 million in the September quarter. While shareholders never like to see a company lose money, that would be a significant improvement from the year-ago quarter, when ETSY stock lost 13 cents per share.
That would imply revenue growth of 39% over Q3 2014 — before Etsy was public — when the homemade goods specialist hauled in $47.6 million.
If you’re thinking about trading around Etsy earnings, just be aware that results can be extremely unpredictable. And I say that with full knowledge of how unpredictable everything is in the stock market today.
When the retailer reported its first-quarter earnings back in May, for example, ETSY stock lost 84 cents per share; analysts were expecting a per-share loss of just three cents. The next quarter, ETSY narrowly beat on both earnings and revenue, only to be rewarded by a 19% drop in its stock price.
Which brings us to what investors need to key in on in Tuesday’s report: guidance and gross merchandise volume (GMV). These were the two areas that particularly disappointed Wall Street three months ago.
GMV growth, which measures the total dollar amount of sales done through Etsy’s marketplace, slipped from 28.2% in the first quarter to 24.6% in the second. Meanwhile the CEO noted currency headwinds would likely suppress sales growth for the near future, as foreign buyers hesitate to buy dollar-denominated items.
ETSY stock has cratered, shedding nearly 50% of its value, since that report.
ETSY Stock: Not Worth the Risk
Only five analysts cover ETSY stock, so it’s not understood very well by Wall Street. This can be a great thing for investors or a not-so-great thing, depending on which way the earnings pendulum swings. But earnings volatility is the least of Etsy’s longer-term concerns.
It also faces head-on competition from the don of online retail, Amazon.com (AMZN), which launched Amazon Handmade, its own handmade goods marketplace, earlier this year.
And from a valuation perspective, ETSY stock is still no steal, despite losing more than 60% of its value since its IPO. With no earnings to speak of — and none expected in 2016 — you’d have to use 2017 or 2018 earnings estimates to value it on a traditional price-to-earnings basis.
More useful perhaps is the price-to-sales ratio, and on that metric, ETSY stock still seems a bit frothy. Shares change hands for 5.2 times sales, a steep premium to AMZN’s 2.9 times sales and Wayfair‘s (W) 2.1 P/S ratio.
At the end of the day, bottom-fishing is always a risky endeavor, and Etsy just isn’t worth the stretch.
Wait for the company to prove it can weather the competition and continue growing at a healthy rate before thinking about adding ETSY to your portfolio.
As of this writing, John Divine was long AMZN stock and W stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
