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Etsy Inc: Why ETSY Stock DESPERATELY Needs a Beat

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Homemade goods retailer Etsy Inc ( ETSY ) will report first-quarter results after the bell on Tuesday, and ETSY stock owners are crossing their fingers for some good news.

Etsy Inc: Why ETSY Stock DESPERATELY Needs a Beat

Shareholders would always prefer to be showered with awesome financial results and a better-than-expected outlook, but ETSY stock is in particular need of a boost: Shares are down a whopping 60% since a year ago, right around the time the hand-crafted goods seller went public.

Let's take a look at what analysts are expecting from Etsy come Tuesday afternoon.

ETSY Stock: Decent But Decelerating Revenue Growth

There's no doubt about it: Etsy is growing, and it's growing pretty quickly. Analysts expect revenue to clock in at $75.15 million, up over 28% year-over-year. But there are a few fundamental problems the company just hasn't been able to address.

One of the issues plaguing ETSY stock is its profitability - or lack thereof. It still doesn't turn a profit, and even on a non-GAAP basis, which takes a more lenient view on profitability than GAAP standards do, it's expected to lose 2 cents per share in the first quarter.

Etsy has tried to combat this by increasingly allowing sellers to use machinery and automated processes to produce their goods, thereby increasing their sales volume and per-unit profit. But with those lax rules came heavy criticism from shoppers (and other sellers) that became a part of the community precisely because the goods weren't produced industrially.

Plus, the simple fact of the matter is that Etsy's attempts to slow or reverse its decelerating revenue growth haven't worked. For the last three years, revenue growth has notably declined, and it's a trend that continues to plague ETSY stock, priced at 425 times forward earnings, to this day:

In 2013, revenue jumped 68%; in 2014, revenue advanced 56%; in 2015, 40%. This year, analysts expect sales to increase by about 25%.

One formidable thorn in Etsy's side - and one investors should be well aware of - is Amazon.com, Inc. ( AMZN ). They launched a head-to-head Etsy competitor, Amazon Handmade, last year, and even had the cojones to contact Etsy sellers directly in an attempt to bring them over to the new platform.

There's no doubt what ETSY stock needs from its first-quarter earnings on Tuesday: A beat and a raise is the only thing that will do. Certainly if you were to pick one metric that will have the least impact on which direction the ETSY stock price goes on Wednesday, it would be earnings per share.

Right now this company needs to prove its revenue decline isn't as dire as it seems, and that it deserves to be valued as a high-potential growth stock whose earnings will fall into line over time. To date, that's not the message the company's been sending.

As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at@divinebizkidor email him at editor@investorplace.com.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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