After the company posted better-than-expected fourth-quarter earnings amid its turnaround and hit a milestone in gross merchandising sales, analysts are anticipating slightly lower earnings for Etsy’s first quarter as the online marketplace seeks to refocus on its core eCommerce offerings.
Analysts are estimating that the eCommerce marketplace will report revenues of $119.3 million and earnings per share of 6 cents on Tuesday (May 8) for the first quarter, compared to their fourth-quarter estimates of $132.5 million and 9 cents, respectively.
Etsy managed to exceed both of those top-line and bottom-line estimates in the fourth quarter, with revenue popping up 2.8 percent to $136.3 million and adjusted earnings per share of 15 cents. The earnings beat came as Etsy hit $1 billion in gross merchandising sales.
The beat also comes as Etsy is in recovery mode and seeking to turn around its business: The company is starting to shift its focus toward the areas that are showing the most growth for the handmade marketplace, particularly on its core eCommerce site.
As a result, the site will likely be curtailing — or at least scaling back — its plans to push into brick-and-mortar retail. That pullback could disappoint Etsy sellers who had anticipated access to additional sales channels.
Etsy’s offline offerings – such as Etsy Wholesale, which got Etsy retailers in spaces like Macy’s – were a way for craftspeople to find new buyers. But Tom Forte, an analyst with D.A. Davidson & Co., told Bloomberg in April that the venture was unlikely to have been much of a revenue driver for Etsy. As a result, Bloomberg reported that Etsy will likely find ways to better align services like Etsy Wholesale to its core eCommerce product.
This change in focus is pleasing investors, such as Greenhaven Road Capital’s Scott Miller, who noted that his fund’s shares have appreciated 35 percent year to date and are up nearly three times from its initial purchases.
“I believe that Etsy still has a long runway for growth, a lot of operating leverage, and will benefit from management’s focus on the core business,” Miller wrote in a note to investors. “Two-sided marketplaces are hard to create and have enormous operating leverage.”
Etsy also faces competition from other eCommerce retailers, such as Amazon. In December, Amazon announced news that Prime Now, its one- and two-hour delivery service, and its handcrafted items marketplace Amazon Handmade, would be teaming up to offer handcrafted products from local artisans for last-minute delivery through the holiday shopping season.
But Forte told Reuters in February that he didn’t think that Amazon was having much impact on Etsy. “I think it has the best business model in the consumer tech space,” Forte told Reuters in February. “And the good news is that all of the changes it’s making are sustainable.”
Etsy has also made additional moves to beef up its eCommerce offering, including launching a tool that allows buyers to find items that ship within one to three days as well as items that come with free shipping, Etsy CEO Josh Silverman noted in a post-earnings conference call in February. The company also rolled out a holiday gift guide and a gift wrap tool that enabled sellers to ship wrapped goods to customers. Even so, Silverman said the company can make further progress on its shipping efforts.
“There's still much work to do to improve the shipping experience on Etsy, and this will be an area of strong focus in 2018,” Silverman said on the call in February.