Etsy Beats In Q2 But Falls 13% After Hours On Troublesome Q3 Guidance

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Today following the cessation of trading, Etsy reported its second-quarter financial performance, including revenue of $61.4 million, and earnings per share of negative $0.07. The street had expected Etsy to lose $0.08 per share, off revenue of around $60 million.

Shares of Etsy, down around 6 percent in after-hours trading, are down around 13 percent after hours, following the company’s earnings beat. (More in a moment on why that is the case.)

For the period, the online craft marketplace saw its revenue expand 44.4 percent, and its net loss grow from $3.1 million to $6.3 million. The firm ended the period with $268.2 million in cash, equivalents and marketable securities.

What In The Hell

Given that Etsy managed to beat expectations — albeit by a slim margin — why are its shares tumbling? A paragraph concerning its third quarter guidance could be the main culprit.

In the rather dry chunk of prose, Etsy notes that its will experience headwinds over foreign exchange difficulties due to the strength of the dollar; that it will increase its marketing spend; and that revenue acceleration from a key product will slow. I’ve highlighted the key bits:

We’d like to highlight a few factors that we believe will impact Etsy’s third quarter 2015 results. First, as we conveyed in the first quarter of 2015, if currency exchange rates remain at current levels, currency translation will continue to negatively affect GMS growth for goods that are not listed in U.S. dollars and will also continue to dampen the demand for U.S. dollar-denominated goods from buyers outside of the U.S. Second, similar to the first and second quarters, we plan to spend more on marketing in absolute dollars in the third quarter compared with both the second quarter of 2015 and the third quarter of 2014. Third, also similar to the second quarter, we expect to increase the pace of hiring in the third quarter compared with both the second quarter of 2015 and the third quarter of 2014. Finally, we would like to remind investors that by the end of the third quarter 2015, we will anniversary the re-launch of Promoted Listings, which has been the biggest driver of Seller Services year-over-year revenue growth this year. As we approach this anniversary, we expect the revenue growth rate from this service to decelerate.

In short, gross sales are in trouble, spend is going up, and revenue growth will slacken. That’s to be polite; not what you want to hear from the company you own.

Up, Sideways, Down, Oops

Etsy’s stock has been on a wild ride since its debut. Priced at $16 per share, Etsy shot to more than $35 per share on its opening day. The company’s shares entered into a slide, which dramatically accelerated following a lackluster first-quarter earnings report. After that double-digit-percentage fall, Etsy languished until a mention from Google sent its shares north again. Today’s decline, followed by its after-hours performance, only add to the fireworks.

Summing the above:

Screen Shot 2015-08-04 at 1.17.43 PM

Etsy, in after-hours trading, is now less than a dollar above its original IPO price.