Etsy Q2 Earnings Preview: The Stock Has Likely Found A Bottom (Rating Upgrade)

Core Viewpoint - Etsy's Q1 FY24 performance showed minimal revenue growth and a decline in Adjusted EBITDA, but there are signs of potential recovery through buyer reactivation and new initiatives [2][4][18] Financial Performance - In Q1 FY24, Etsy generated $646 million in revenue, a 0.8% year-over-year increase, while Adjusted EBITDA fell 1.4% to $167.9 million, with margins decreasing by 60 basis points to 26% [2] - Gross Merchandise Sales (GMS) declined 3.7% year-over-year, but Active Buyers increased by 1.9% [2] - The company expects GMS to decline in Q2 FY24 in a similar range to Q1, but management anticipates a modest acceleration in the second half of the year [4][14] Competitive Landscape - Competitor Temu has shifted its focus away from the US market, which may benefit Etsy by reducing competition [3] - Etsy has implemented new policies to enhance seller transparency and launched an ad campaign to emphasize the human aspect of its marketplace [3][18] Economic Environment - Declining inflation and potential interest rate cuts by the Federal Reserve could reignite consumer spending, positively impacting Etsy's growth [3][18] - Retail sales have shown moderate growth, particularly in online sales and general merchandise, which may support Etsy's performance [3] Future Outlook - Etsy's take rate increased to 21.6% in Q1 FY24, and the company expects it to remain stable in Q2 [4] - Analysts predict a revenue growth of 1.7% year-over-year for Q2 FY24, with adjusted EPS expected to decline by 33.27% [14][16] - The company aims to maintain Adjusted EBITDA margins around 27.5%-28% in the coming years, with a potential price target of $85, indicating a 37% upside [17][18]