Etsy Inc (NASDAQ:ETSY, ETR:3E2) shares added more than 5% after it reported a revenue beat for the second quarter, despite earnings falling short of expectations.
Revenue was up 3.8% year-over-year at $672.7 million, above Wall Street estimates of $647 million.
Earnings per share of $0.25 were significantly below estimates of $0.49.
Gross merchandise sales (GMS) fell 4.8% year-over-year to $2.8 billion, or a 5.8% decline on a currency-neutral basis.
Analysts at Jefferies highlighted that this was 1.5% above the consensus and relatively stable when compared to the first quarter.
After accounting for the divestiture of Reverb, the decline in total GMS narrowed to around 3% to 3.5%, translating to a beat of roughly 6%, the analysts added.
“Etsy delivered impressive Q2 GMS and revenue upside, especially after excluding Reverb,” they wrote. “Marketing investments appear to have partly contributed to the topline beat, coming in 11% ahead and resulting in limited margin flow-through.”
Underlying softness in user activity was reflected in a 2.9% decline in GMS per buyer and a 4.6% year-over-year drop in active buyers, the analysts wrote.
These metrics highlight the ongoing challenge Etsy faces in re-engaging its user base, even as the platform’s monetization efforts continue to improve.
Looking ahead, Etsy guided for third-quarter GMS of $2.6 billion to $2.7 billion, representing a 9% year-over-year decline at the midpoint and falling about 2% below consensus.
Importantly, that decline includes a 7% to 8% headwind from the Reverb sale, suggesting a more meaningful improvement in the core Etsy marketplace, Jefferies pointed out.
Revenue for the quarter is expected to come in around $650 million at the midpoint, which is 1% above consensus, based on a projected 24.5% take rate.
The analysts noted Etsy’s guidance implies “meaningful sequential improvement in GMS declines, offset by some continued margin pressure.”
“We were encouraged by the GMS acceleration, but will be listening for durable margin pressures,” they wrote.
Jefferies highlighted several areas of investor focus heading into the second half of the year.
Among them is whether GMS per buyer and active buyer trends will stabilize or rebound, how effectively the company can drive mobile app adoption, which historically converts at much higher rates than web traffic, and whether recent churn can be mitigated.
The firm also noted investor interest in Etsy’s performance marketing returns, especially in light of decreased ad spending from rivals Temu and Shein, which could create a more favorable competitive environment.
The analysts have a ‘Hold’ rating on Etsy and $62 price target.
Shares of Etsy added 5.6% at about $64 on Wednesday morning.