While the momentum of its mask sales might be starting to slow, Etsy still posted strong third quarter earnings that beat analysts’ expectations.
Etsy was one of the first market movers in providing masks when the CDC announced masks helped stem the spread of Covid-19. Etsy reached out directly to its sellers, encouraging them to quickly fill a global need. It was also bolstered by sales of housewares as Americans livened up their homes for the long haul.
The result is that Etsy has seen strong gains compared to last year. The company reported adjusted earnings of $0.70 per share, exceeding analysts’ estimates of $0.57 per share. Earnings in the same quarter of last year were $0.12. The company also reported $451.5 million in revenues, up 128% from the same quarter last year, and beating analysts’ expectations of $412.7 million.
Masks accounted for 11% of Etsy’s $2.6 billion in gross merchandise sales (GMS), both down slightly from the last quarter. But masks sales are now a blessing and a curse, and present a challenge for Etsy going forward: how to retain customers who came to the site looking for masks.
“This is a big question,” says RBC analyst Shweta Khajuri. “Will the company be able to bring customers back to buy more?”
Investors seem to think not. Etsy shares fell 2.5% on Wednesday to close at $139.64 as the company revised its guidance downward for the fourth quarter. Even though the company has been fueled by pandemic-related purchases, investors know that consumers may not need to make new mask purchases. There’s also still the looming possibility of a vaccine early next year. Etsy has revised its guidance downward for the fourth quarter, despite going into the holiday season.
Khajuri says this is to be expected. “At the beginning of Covid, Etsy was flexible enough to meet mask demand, but now other larger retailers have caught up. Plus, even if a buyer gets their masks exclusively from Etsy, they only need so many masks.”
The company reported that buyers’ whose first purchase was not a face mask tend to be more active. But for buyers’ whose first purchase was a face mask, they tend to only come back for more masks.
“We’re watching new buyers whose first purchase was a face mask, because it may be an indication that their lifetime value is going to be lower than what our traditional cohorts have been,” said CEO Josh Silverman.
Even though first-purchase mask buyers may not stick around, analysts were glad to see an increase in new buyers.
Etsy saw 15 million new buyers this quarter. (New buyers are defined as new buyers or buyers that have not bought on the site for at least a year.) While this is down from the 18.7 million new buyers from last quarter, it’s still up 112% from the same quarter last year.
The company is still seeing strong sales in its other top three categories. Homewares and home furnishings posted $772 million in sales for the third quarter, up 4.3% from last quarter and up 126% from last year. Jewelry and accessories, and craft supplies are the next two. If masks were their own category, they would be the fourth largest.
This is a good sign for Etsy. Excluding mask sales, GMS growth accelerated 93% in Q2 and Q3, which should power them through the end of the year.
The company is now looking towards the holidays, beginning it’s TV ad campaign this week. Etsy also partnered with Klarna so that buyers can pay for purchases in installments, and debuted personalized searches.