Despite the turbulent macroeconomy over the past year and the potential for a recession ahead, e-commerce company Etsy, Inc. (ETSY) is focusing on a few strategic priorities in the near term.

ETSY CEO, Josh Silverman, stated, “We’ve kicked off an exciting pipeline of product development and marketing initiatives to drive improved customer experiences and engagement in 2023.”

The company aims to focus on deepening buyer curiosity and engagement, instilling trust when carrying out transactions, and being the preferred platform for its sellers by offering efficiency and effectiveness. The company believes its disciplined investment approach can leverage the e-commerce industry’s growth and best-in-class profitability over time.

Moreover, the company could receive significant tailwinds from the e-commerce industry’s prospects on the backs of increasing digitization and rising internet penetration. This year, e-commerce sales could reach a staggering $1.03 trillion, indicating a 7.7% year-over-year increase.

However, ETSY’s stock has fallen 28.8% over the past six months and marginally over the past month to close its last trading session at $85.15. On the other hand, Wall Street analysts expect the stock to hit $117.28 in the near term, indicating a potential upside of 37.7%. 

Here are some factors that could influence ETSY’s performance in the upcoming months:

Mixed Financials 

For the fiscal first quarter that ended March 31, 2023, ETSY’s revenue increased 10.6% year-over-year to $640.88 million. The company’s gross profit increased 9.6% year-over-year to $445.42 million. However, its net income declined 13.4% year-over-year to $74.54 million. In addition, its net EPS attributable to common stockholders declined 11.7% year-over-year to $0.53.  

High Profitability  

In terms of the trailing-12-month EBIT margin, ETSY’s 14.58% is 100.5% higher than the industry average of 7.27%. Its 16.78% trailing-12-month EBITDA margin is 57.5% higher than the industry average of 10.65%. Likewise, its 21.43% trailing-12-month levered FCF margin is 493.4% higher than the 3.61% industry average. 

Stretched Valuation

In terms of forward EV/Sales, ETSY is trading at 4.29x, 263.7% higher than the industry average of 1.18x. Its forward Price/Sales multiple of 3.81 is 340.6% higher than the industry average of 0.86. Its forward P/E ratio of 34.89x is 129.5% higher than the 15.20x industry average.

Mixed Analyst Estimates 

Its EPS for fiscal 2023 is expected to decline 6.6% year-over-year to $4.30, while for fiscal 2024, it is expected to increase 13.9% year-over-year to $4.90.    

Its EPS for the quarter ended June 30, 2023, is expected to decline 4.9% year-over-year to $0.90. However, ETSY’s EPS and revenue for the quarter ending December 31, 2023, are expected to increase 23.5% and 6.7% year-over-year to $1.42 and $861.51 million, respectively.

POWR Ratings

It’s no surprise that ETSY has an overall C rating, equating to Neutral in our POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. 

ETSY has an A grade for Quality, consistent with its high profitability. However, it has a D grade for Value, in sync with its higher-than-industry valuation.

It also has a C grade for Growth, justified by its mixed financial growth in the last reported quarter. Within the Internet industry, ETSY is ranked #41 out of 57 stocks.   

Click here to access the additional ratings of ETSY for Momentum, Stability, and Sentiment.  

Bottom Line  

With ETSY’s plans to launch product development and marketing initiatives to drive improved customer experiences, the company could realize benefits in the long term. However, given its stretched valuation and mixed financial estimates, it might be better to wait for a better entry point in the stock.

How Does Etsy, Inc. (ETSY) Stack Up Against Its Peers?   

While ETSY has an overall grade of C, equating to a Neutral rating, check out these other stocks within the Internet industry with an A (Strong Buy) rating: trivago N.V. (TRVG), Travelzoo (TZOO), and Yelp Inc. (YELP).

What To Do Next?

Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:

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ETSY shares were trading at $83.72 per share on Thursday afternoon, down $1.43 (-1.68%). Year-to-date, ETSY has declined -30.11%, versus a 15.60% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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