E-commerce, believe it or not, exists beyond the bounds of Amazon (NASDAQ:AMZN). Indeed, the company and website known as Etsy (NASDAQ:ETSY) has a special place for artisans and sellers of handmade crafts as well as the shoppers who buy them. I can appreciate the artistic and individualistic touch of those items, but as an investor I have to put my aesthetic sensibilities aside and analyze ETSY stock on its own merits.
The stakes are higher than usual, it seems, as Etsy is scheduled to report its fourth-quarter 2019 earnings on Feb. 26 after the market closes.
With this earnings preview, we may reveal a company that’s still struggling to find its footing, but if the numbers suggest room for growth, there may yet be hope for this online crafts marketplace.
A New Leader Makes Big Changes
Founded back in 2005, Etsy grew by fits and starts over the years but eventually gained traction and went public in 2015. The company struggled after the IPO, however, until Etsy underwent a leadership revolution as Josh Silverman replaced outgoing CEO Chad Dickerson in 2017.
If Dickerson was beloved and made people feel warm and fuzzy, Silverman was mean and lean as he immediately shut down projects and laid off employees. Under the newly installed chief executive’s rule, Etsy seemed to lose its artsy, homespun appeal in favor of relentless profiteering. In the words of former Etsy employee Matt Stinchcomb, “Etsy had the potential to be one of the truly great ones … But it looks like they are cutting anything that’s not essential to the business. This is a cautionary tale of capitalism.”
As we all should know by now, though, stockholders love cutthroat capitalism and heartless, take-charge CEO’s. Thus they rewarded Silverman by pushing ETSY stock from the $17 level in 2017 to $72 in February of 2019; the share price has backed off since then but is threatening to return to its former peak.
Clearly there’s a lot at stake here for Mr. Silverman; if the upcoming earnings report is a huge “beat,” his not-so-freewheeling management approach may be vindicated after all. A really bad “miss,” on the other hand, could prove to be the beginning of the end for this draconian CEO.
An earnings beat might not be all that difficult, however, as the consensus forecast calls for earnings of 17 cents per share — much lower than the actual result of 32 cents per share for the same quarter a year earlier. In the most recent report, the actual result was quarterly earnings of 12 cents per share, exactly in line with the consensus estimate at that time.
Interestingly, one prominent analyst has gone full-tilt bearish on ETSY stock. The bear in question is Morgan Stanley analyst Lauren Cassel, who downgraded ETSY to “underweight” and cut her price target from $52 all the way down to $38; apparently, Cassel didn’t much care for the company’s decision to reduce its investments in product-listing advertisements on Google (NASDAQ:GOOGL, NASDAQ:GOOG).
What concerns me isn’t the Google ads issue, but rather the question of whether Etsy is the same company that shoppers and sellers came to know and love in the first place. Given Silverman’s reputation, I find it odd and rather contrived that the company is now suddenly pushing a “Keep Commerce Human” campaign, of all things. Were you “keeping commerce human” when you axed 140+ employees, Mr. Silverman?
Earnings Preview: The Takeaway on Etsy Stock
Caustic commentary aside, suffice it to sat that the bar’s been set pretty low for the Q4 earnings report, so oddsmakers should remain fairly bullish come announcement time.
Under the current regime, I’m feeling a tad uneasy about Etsy as the company may be enriching shareholders at the expense of a rare, precious, and life-giving commodity: its spirit.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.