The Etsy (NASDAQ:ETSY) share price has been moving like a rollercoaster throughout 2021. While overall, the US stock has been heading in an upward trajectory, it’s hardly been a smooth climb. And today that volatility continues since the Etsy share price plunged 12% in aftermarket trading following the release of its latest earnings report. Let’s take a closer look at what happened. And whether this is a buying opportunity for me to increase my position within my portfolio.
Earnings versus investors
Despite what the falling Etsy share price might suggest, its second-quarter earnings report is actually quite encouraging. At least, I think so. Over the last six months, total revenue came in at just under $1.1bn. That’s around 64% higher than a year ago despite easing lockdown restrictions. This, in turn, pushed operating income to $239m, increasing proportionally to revenue growth.
Needless to say, that’s pretty good news. So why did the share price slide in aftermarket trading?
The falling Etsy share price
Going into this report, many investors were concerned about the fall in e-commerce sales in general. Last week shares of Amazon dropped like a stone following a disappointing earnings release. Now that bricks & mortar stores are reopening their doors, the level of online spending has naturally declined. And this is something that has already begun impacting Etsy’s revenue stream.
Revenue for the quarter did grow by double-digits. But the management team’s guidance for the next three months didn’t show signs of additional growth. The business has forecast revenue to be between $500m and $525m, compared to the $528.9m achieved this quarter. That goes against analyst expectations of $527m. But also, Etsy decided not to provide full-year guidance due to the ongoing impacts of Covid-19 around the world.
It seems there is a growing level of uncertainty amongst businesses and investors surrounding the demand for online shopping once the pandemic has ended. With that in mind, it’s easy for me to see why the Etsy share price took a hit. But are investors overreacting?
Taking a closer look
I have no doubt that online spending will see some decline over the next six months as the pandemic hopefully comes to a close. However, I think it’s important to remember that 2020 was an exceptional year. So, comparing results to a time when online sales were pretty much the only viable shopping solution for non-essential items (like the ones sold on Etsy’s platform) doesn’t seem sensible to me.
Instead, comparing this forecast against third-quarter earnings of pre-pandemic 2019 is far more telling. And it shows that revenue has increased by over 150%! So, while e-commerce popularity might be falling compared to a year ago, I believe it will remain firmly above pre-pandemic levels moving forward.
The risks of a slowdown remain prominent. After all, Etsy is hardly a cheap stock, meaning volatility will likely continue over the short term. But as an existing shareholder, this recent decline looks like a buying opportunity for my portfolio. And so, I am tempted to buy some more.
