* Expects 2018 revenue to grow 32 pct-34 pct Increases transaction fee to 5 pct from 3.5 pct
* Shares surge 35 pct to hit record high (Adds background, analyst comments; Updates share price)
June 14 (Reuters) - Etsy Inc on Thursday raised its full-year revenue growth forecast, boosted by an increase in its transaction fee for sellers, sending shares of the company surging 35 percent to a record high.
The share jump pushed up the company's market cap by $1.4 billion.
The site for handmade goods, which struggled after its initial public offering in 2015, began its turnaround effort after board member and former eBay executive Josh Silverman took charge as chief executive officer in May last year after ex-CEO Chad Dickerson stepped down.
Silverman came to Etsy amid concerns about slowing growth, poor functionality of the company's website and the specter of competition from Amazon.com Inc, which launched a marketplace for handmade goods in 2015.
The company now expects revenue growth of 32 percent to 34 percent in 2018, up from its previous forecast of 22 percent to 24 percent. It also raised the higher end of its gross merchandise sales growth range.
Etsy's share movement was in contrast to arts and crafts specialty retailer Michaels Cos Inc, which dropped 15 percent after it expected flat comparable sales in the second quarter and comparable sales growth of up to 1.5 percent in fiscal 2018.
Etsy, however has beaten average analysts' estimates in every quarter since Silverman's appointment to the helm. It missed estimates in the four quarters prior to his arrival.
The company's shares have more than doubled in the last 12 months.
"Etsy management has improved its merchandising, which in turn has led to stronger merchant sales. As Etsy is doing more for the merchants, Etsy is able to charge more, especially since the fees were relatively cheaper than competitors," analyst Ronald Bookbinder of IFS Securities said.
Etsy said it would increase the transaction fee it charges when a seller makes a sale to 5 percent from 3.5 percent. The new fee would apply to the cost of shipping.
The company said it plans to increase direct marketing spending by at least 40 percent in 2018 and revamp community platforms.
Etsy has shifted its focus to areas that are showing the most growth for the handmade marketplace, particularly on its core e-commerce site.
The company has improved its website's search function and uses artificial intelligence to provide better product recommendations for customers. In 2017 the company also ran holiday promotions for the first time.
"They took that really good business model and fine tuned the engine and now they have got that engine firing on all cylinders," D.A. Davidson & Co. analyst Tom Forte said. (Reporting by Arjun Panchadar in Bengaluru; Editing by Bernard Orr and Shounak Dasgupta)