Etsy Inc (ETSY) might be a good way for small-time merchants and sellers of craft goods to make a buck or two, but it has been a lousy investment since going public earlier this year.
Shares are down more than 60% from their day 1 closing price back in April, when ETSY stock was about $30 a pop.
At the market close on Tuesday, shares stood at just $11.03 — and at the time this article was written, ETSY stock was off another 7% after posting third-quarter results yesterday afternoon.
Yet again, the picture Etsy painted was an unflattering one: It’s unprofitable, revenue growth is decelerating, costs are ramping up and margins are threatened.
Yikes.
In other words, there’s still not a compelling reason to buy ETSY stock. At all.
Etsy Q3: By the Numbers
Let’s take a look at the results that had analysts at Morgan Stanley (MS), Brean Capital, Monnesss Crespi & Hardt and elsewhere slashing their ETSY stock price targets.
While ETSY stock’s third-quarter per-share loss of six cents was in line with estimates, revenue fell just short of consensus expectations. Revenue grew 38% to $65.7 million from $47.6 million in the year-ago quarter, falling short of the $66.17 million analysts expected.
More importantly, two metrics that ETSY stock holders watch carefully also failed to deliver: gross merchandise sales (GMS), and fourth-quarter guidance.
GMS, or the total value of all transactions across Etsy’s platform, increased by 21.7% in the third quarter, decelerating from 24.6% in Q2 and 28.2% in Q1. Frustratingly enough, this came despite Etsy’s marketing splurge; marketing spend was up a whopping 88% year-over-year.
Now for fourth-quarter guidance: Etsy stated very clearly in its earnings release that it expects gross margins to slip on a year-over-year basis in Q4. While part of this has to do with more difficult comparables, the bigger rub is that marketing spend will continue accelerating faster than revenue.
ETSY stock won’t ever pick up momentum if that trend continues.
It didn’t help that Etsy was yet again hurt by currency headwinds, which put pressure on overseas revenue.
If there was one redeeming part of yesterday’s results, it may have come in the form of a simple comment from Etsy’s CEO, Chad Dickerson, who subtly dismissed Amazon (AMZN) as a threat to its business on the conference call:
“We know from our decade of working alongside our seller community that more than 50% of our sellers already sell through other channels like craft fairs, their own websites, and other online marketplaces but the Etsy is the largest source of income to the sellers. Based on what we’ve seen in the market we don’t expect this to change.”
That’s good to hear, but it’s not going to revive the ETSY stock price.
I understand that online retail is a wildly competitive area, and it’s not so simple to turn a profit. Etsy is still a successful company with loyal users and very impressive revenue growth.
It’s just not a great stock … and until it can start turning consistent profits and stem its decelerating revenue growth, I’d keep this stock far away from your portfolio.
As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
