Bull of the Day: Etsy, Inc. (ETSY)
Etsy’s (ETSY) online marketplace might be best described as a massive digital craft fair. The niche e-commerce platform was steadily growing over the last several years, and then the coronavirus pandemic hit.
Etsy shares are now up nearly 200% in 2020 and it crushed second quarter estimates on August 5.
The Elevator Pitch
Etsy is an e-commerce marketplace that allows individuals and small businesses to sell everything from clothing to art and home décor. One of the Brooklyn-based company’s tagline is: “Find the perfect handmade gift, vintage & on-trend clothes, unique jewelry, and more... lots more.”
Etsy has carved out a solid space within the booming e-commerce market by selling items consumers might not find on Amazon (AMZN), eBay (EBAY), and retailers like Target (TGT), while also providing a somewhat more quaint and local business vibe.
The firm went public in 2015 and was founded back in 2005. Etsy also owns Reverb, which is a global marketplace for “buying and selling new, used, and vintage musical instrument.”
Etsy grew its annual revenue by 36% in both 2019 and 2018, which helps showcase its growth well before the pandemic forced many businesses deemed non-essential to shut down. ETSY shares also surged long before the coronavirus. And investors should know that despite all of the talk about the e-commerce explosion, we are still in the very early days.
For instance, e-commerce sales accounted for 11.8% of total U.S. retail sales in the first quarter of 2020, up from 10.5% in the year-ago period. This gives the space miles of runway to continue its expansion for decades.
Full COVID-19 Quarter
In the first quarter, ended on March 31, the e-commerce firm’s sales jumped 35%, with active sellers up 26% and buyers up 16%. Etsy then reported blowout second quarter results on August 5. The company’s adjusted earnings skyrocketed over 400% from $0.14 to $0.75 per share, which crushed our $0.42 estimate.
Meanwhile, its Q2 revenue surged 137% to hit $428.7million—30% above our estimate. Both its marketplace and services revenue—such as promotional ads—climbed over 110%.
Some of the headlines focused on Etsy’s big mask sales, as consumers turned to the e-commerce marketplace to buy $346 million worth of face masks, which accounted for roughly 14% of its $ 2.69 billion in total gross merchandise sales.
More importantly, its non-mask sales surged 93%, up from the 79% growth the firm saw in April. This helped showcase that buyers who might have come to Esty for a mask, stayed for something else. And it's worth noting that Etsy’s bonus mask growth could continue on a smaller scale as long as the virus is with us.
Etsy’s actives sellers also jumped 35%, with buyers up 41%. “Our ‘Right to Win’ strategy provides a clear and enduring roadmap for product and marketing investments that make it easier to shop on Etsy, build top of mind awareness, and solidify buyer trust,” CEO Josh Silverman said in prepared Q2 remarks.
What Else…
Etsy stock is up 675% in the last five years. This run includes a 190% jump in 2020, with its stock up 290% from the market’s March 23 lows from around $32 to its current price of roughly $130 per share. And some might be pleased to see that ETSY has already pulled back about 7% from its recent highs.
Despite the impressive run, Etsy trades below its own two-year highs of 12.1X forward 12-month sales at 11.1X, which marks a serious discount to fellow pandemic highflyer Zoom Video’s (ZM) 35X. Etsy also currently holds an “A” grade for Growth and a “B” for Momentum in our Style Scores system.
Looking ahead, our current Zacks estimates call for Etsy’s third quarter revenue to jump 108%, with Q4 projected to come 65% higher. Overall, the company’s sales are projected to surge 85% from $818 million in FY19 to reach $1.51 billion in fiscal 2020.
At the bottom end of the income statement, Etsy’s adjusted Q3 earnings are expected to climb 375% to $0.57 per share, with FY20 projected to come in 170% higher. We can also see how much Etsy’s bottom-line estimates have moved higher since its recent report, with FY20 up 101% and FY21 nearly 40% higher.
Bottom Line
Etsy’s overall positive earnings revision strength helps it earn a Zacks Rank #1 (Strong Buy) at the moment. Now some investors might want to wait for a pullback or think that Etsy’s run might be over. But let’s not forget that the coronavirus could be with us for a while and that e-commerce is still in the early days.
Therefore, Etsy might remain a solid pandemic play, as well as a long-term bet on digital commerce. And it’s worth pointing out that Shopify (SHOP) trades at close to $1,000 per share, with Amazon at $3,135. This might help make Etsy’s $130 per share price tag even more attractive to some investors.
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