Etsy shares soar as management crafts a turnaround

NEW YORK (Reuters) - Shares of online crafts retailer Etsy Inc ETSY.O jumped 20.4 percent on Wednesday after it reported fourth-quarter results that surpassed analyst expectations, showing signs of a turnaround since it brought on a new chief executive last year.

The shares rose as high as $26.23, their highest level since April 2015, the month Etsy went public, before closing at $25.31.

After Tuesday’s market close, Etsy reported earnings per share of 36 cents on a GAAP basis. With 17 cents in adjusted earnings per share on $136.3 million in revenue, it beat the average analyst estimate of 8 cents in earnings per share on $132.6 million in revenue, according to Thomson Reuters I/B/E/S. Gross merchandise sales grew to $1.02 billion, up 17.8 percent from the fourth quarter of 2016.

For 2018, the company projected growth of 14 to 16 percent in gross merchandise sales and revenue growth of 21 to 23 percent, also topping analysts’ expectations.

In every quarter since Chief Executive Josh Silverman joined Etsy in May, the company has beaten average analyst estimates. It missed estimates in the four quarters prior to his arrival. Etsy’s shares rose 73.6 percent in 2017.

“The management team’s initiatives and focus on improving (gross merchandise sales) are clearly having a positive impact,” RBC Capital Markets analyst Dylan Haber wrote in a research note.

Silverman came to Etsy amid concerns about slowing growth, poor functionality of the company's website and the specter of competition from Inc AMZN.O, which launched a marketplace for handmade goods in 2015. Hedge fund Black-and-White Capital had called upon the company to explore a sale.

Etsy’s most recent results, along with its stock performance on Wednesday, suggests that it is addressing those concerns, said Thomas Forte, an analyst at D.A. Davidson & Co.

“There was fair investor skepticism on the name,” Forte said. “The new management has come in and done a really good job. They’re proving skeptics wrong.”

Etsy has improved its website’s search function and uses artificial intelligence to provide better product recommendations for customers. In 2017 the company ran holiday promotions for the first time.

Amazon’s entrance into the crafts marketplace has had little impact on Etsy’s performance thus far, Forte said.

“I think it has the best business model in the consumer tech space,” he said. “And the good news is that all of the changes it’s making are sustainable.”

Reporting by April Joyner; Editing by Leslie Adler