Etsy, Inc. (ETSY) in Brooklyn, New York and San Jose, Cal.-based eBay, Inc. (EBAY) are two of the most notable online marketplaces that facilitate consumer-to-consumer and business-to-consumer sales through their websites. ETSY’s online marketplaces include Etsy.com and Reverb.com. EBAY’s platform includes its online marketplace at ebay.com and an eBay suite of mobile apps.
Since people worldwide have been under strict lockdown measures for the last nine months, it has been the online where much economic activity has been happening. Consumers’ shopping habits have been greatly influenced by the pandemic, and companies such as ETSY and EBAY have been able to take advantage of this.
While ETSY has returned 2053.9% over the past five years, EBAY has gained 82.9%. In terms of past year performance, ETSY is the clear winner with 301.6% gains versus EBAY’s 39.2% returns. Here is why ETSY is a better pick now:
ETSY recently launched Single Page App pagination to create faster, more responsive search pages. Furthermore, the company has incorporated buyer characteristics into its ranking algorithm for in-cart recommendations, which should drive incremental GMS in the near terms. The company has also launched a listing videos platform and added enhancements to its Etsy Ads service. These investments should significantly increase the company’s advertising revenue in the upcoming months.
On December 8, EBAY introduced a low-cost way for sellers to securely ship trading cards priced $20 and under, beginning this month. This development will allow the company to meet the needs of their sellers and grow their online platform.
On November 19, EBAY and Optoro announced an exclusive partnership to enable retailers to sell returned and excess inventory seamlessly on EBAY. This should accelerate the pace of resale on EBAY’s platform.
Recent Financial Results
In the third quarter ended September 30, 2020, ETSY’s revenue surged 128.1% year-over-year to $451.48 million, driven primarily by the growth in marketplace revenue. The company’s gross profit has risen 156.8% from the year-ago value to $331.30 million, while EPS grew 525% year-over-year to $0.75.
ETSY’s consolidated active buyers grew 55.4% year-over-year, and active sellers grew 42.0% over this period. The company’s consolidated GMS rose 119.4% from the prior-year quarter to $2.63 billion, due primarily to more merchants joining the platform.
In comparison, EBAY’s revenue increased 25.1% year-over-year to $2.61 billion for the third quarter ended September 30, 2020. The company’s annual active buyers increased 5% year-over-year, while gross merchandise volume grew 22% on an as-reported basis. Its gross profit grew 25.6% from the year-ago value to $1.95 billion, while EPS grew 154.1% over this period.
Here ETSY is in an advantageous position.
Past and Expected Financial Performance
ETSY’s revenue and levered free cash flow has grown at a CAGR of 49.2% and 102.2%, respectively, over the past three years. The company’s EBITDA grew at a CAGR of 114% over this period.
Analysts expect the company’s revenue to increase 12.3% next year. ETSY’s EPS is expected to grow 132% in the current quarter, 177.6% in the current year, and 2.8% next year.
In comparison, , EBAY’s revenue and levered free cash flow have grown at a CAGR of 7.1% and 7.6% over the past three years. The CAGR of the company’s EBITDA has been 8.2%.
Analysts expect the company’s revenue to increase 8.1% next year. EBAY’s EPS is expected to increase 25.8% in the current quarter, 48% in the current year, and 9.1% next year.
EBAY’s trailing-12-month revenue is more than eight times ETSY’s. Also, EBAY is more profitable with a gross profit margin of 77.5% versus ETSY’s 70.6%.
However, ETSY’s levered free cash flow margin of 27.9% compares favorably with EBAY’s 19.1%.
In terms of forward P/E, ETSY is currently trading at 83.81x, much more expensive than EBAY, which is currently trading at 16.4x. Moreover, in terms of trailing-12-month Price/Sales as well, ETSY’s 15.41x is 389.2% higher than EBAY’s 3.15x.
Though ETSY looks much more expensive compared to EBAY, we think it is worth paying this premium considering ETSY’s significantly higher revenue and earnings growth potential.
ETSY is rated “Buy” in our proprietary POWR Ratings system, while EBAY is rated “Neutral”. Here are how the four components of overall POWR Rating are graded for ETSY and EBAY:
ETSY has an “A” for Trade Grade and Industry Rank, a “B” for Buy & Hold Grade and Peer Grade. In the 61-stock Internet industry, it is ranked #20.
EBAY has an “A” for Industry Rank, a “B” for Trade Grade, a “C” for Buy & Hold Grade, and a “D” for Peer Grade. It is ranked #28 of 61 stocks in the same group.
While both ETSY and EBAY are good long-term investments considering their market dominance and continued expansion, ETSY appears to be a better buy based on the factors discussed here.
While EBAY is a relatively cheaper option through which to bet on the immense growth potential of the online marketplace, ETSY is a proven winner, and its premium valuation is justified given its earnings growth potential.
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ETSY shares were trading at $171.34 per share on Monday afternoon, down $6.57 (-3.69%). Year-to-date, ETSY has declined -3.69%, versus a -1.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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