Based in Brooklyn, New York, Etsy, Inc. (ETSY) operates a marketplace where people around the world connect, both online and offline, to make, sell and buy goods. Its online marketplaces include Etsy.com and Reverb.com. Through its platform, the company offers handmade and vintage items, art, and supplies, as well as regular items such as clothing, housewares, paper goods, candles, bags and purses, music, and wood-working items.
Riding the e-commerce wave, the company’s business grew significantly last year with a focus on its unique offerings. The stock has gained 273.8% over the past year to close yesterday’s trading session at $167.57. ETSY’s investments in marketing have paid off: roughly 50% of 138 million buyers on the company’s marketplace made at least one purchase over the past year. This is one reason why the company had an impressive performance in the third quarter (ended September 30, 2020) with significant improvement in revenues and gross merchandise sales (GMS).
ETSY sold 24 million masks in the third quarter, which accounted for roughly 11% of its GMS. Moreover, its GMS, excluding mask sales, increased 93% year-over-year to $2.2 billion. This impressive performance and the potential upside based on several factors have helped the stock earn a “Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates ETSY:
Trade Grade: A
ETSY is currently trading above its 50-day and 200-day moving averages of $165.10 and $132.65, respectively, indicating an uptrend. Moreover, ETSY has gained 24.5% over the past three months, reflecting solid short-term bullishness.
The company’s revenue increased nearly 128% year-over-year to $451.5 million for the third quarter ended September 30, 2020. Its GMS increased 119.4% year-over-year to $2.6 billion. Its number of active buyers increased 55.4% year-over-year to 69.6 million, and its number of active sellers increased 42% year-over-year to 3.7 million. Net income increased 520% year-over-year to $91.8 million, yielding EPS of $0.70, which increased 483.3% year-over-year.
ETSY announced its annual Cyber Week Sales Event on November 12, which continued until December 2. The former eight-day event was extended to 10 days and shoppers with the Etsy app had exclusive, early access to the sales event. ETSY joined forces with Roller Rabbit in November to launch a colorful, limited-edition tablescape and entertaining line featuring the Roller Rabbit x Etsy collection. And in October, ETSY introduced the ‘Buy Now, Pay Later’ option with Klarna.
Buy & Hold Grade: C
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, , ETSY’s positioning is not too favorable. The stock is currently trading 15.6% below its 52-week high of $198.50, which it hit on December 22.
Leveraging its unique inventory and dynamic business model, the company’s net revenue has grown at a CAGR of 49.2% over the past three years. ETSY’s EBITDA has increased at a CAGR of 114% over the past three years, while its EPS increased at a CAGR of 140.6% over the same period.
Peer Grade: C
FTCH and SE beat ETSY, gaining 454.1% and 380.2%, respectively, over the past year, while AMZN returned 64.9% over the same period.
Industry Rank: A
The Internet industry is ranked #20 of the 123 StockNews.com industries. The companies in this industry concentrate on numerous online business opportunities including content, auction exchanges, e-commerce sales, and advertising sales.
The companies in this industry saw a major surge in demand during the pandemic as people were forced to spend much more time at home. Even as the economic activities regain steam with the COVID-19 vaccine rollout, we think this industry will witness sustained growth with consumers and businesses sticking to their newly learned consumption habits.
Overall POWR Rating: B (Buy)
ETSY is rated “Buy” due to its short-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our overall POWR Rating.
2020 proved to be one of the best years for e-commerce companies, especially for ETSY. The company grew significantly last year thanks to the pandemic and should continue growing this year. So, despite gaining 273.8% over the past year, the stock still has plenty of upside.
In the words of Josh Silverman, ETSY CEO, “We are making significant investments today that reflect our strong conviction that Etsy has considerable opportunities for further growth – and that investments in technology, marketing, product, and people will yield both near and long-term benefits.”
Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for ETSY. It has an average broker rating of 1.35. Of 17 Wall Street analysts that rated the stock, 7 rated it “Strong Buy.” Moreover, ETSY’s earnings surprise history looks impressive, with the company missing the consensus estimate in just one of the trailing four quarters. The consensus revenue estimate of $370.83 million for the quarter ending March 31, 2021 indicates 68.4% growth versus the same period last year. Its EPS is expected to grow 310% for the quarter ending March 31, 2021.
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ETSY shares were trading at $169.15 per share on Thursday morning, up $1.58 (+0.94%). Year-to-date, ETSY has declined -4.92%, versus a 1.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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