Etsy (NASDAQ: ETSY) is an online marketplace connecting buyers and sellers of unique products that went public in 2015. Since then, it has proven to be resilient in the face of stiff competition from the likes of Amazon (NASDAQ: AMZN) and eBay but has still prospered. Like many companies, Etsy was initially challenged by COVID-19, but it has acted as a catalyst for growth while traditional retailers have struggled. However, does the niche that Etsy has carved out in the e-commerce space make it a good buy?
The bull case for Etsy:
Etsy believes that the connection between buyers and sellers is key to its success and differentiates it from competitors with a mission to “keep commerce human.” Etsy has only scratched the surface of a huge market opportunity that it estimates will be valued at $437 billion by 2023. Etsy has demonstrated its global footprint with 42% of gross merchandise sales (GMS) for the first-quarter of 2021 located outside of the U.S.
Etsy has continued to perform with revenue increasing by 141% to $551 million in Q1 of 2021 and gross merchandise sales of $3.1 billion up 128% compared to the same period last year with sellers pivoting to meet demands. During the first quarter, Etsy’s active buyers increased 91% year-over-year (YoY) to $90 million while ad revenue was up 93% year-over-year. Etsy’s ability to pivot quickly during the pandemic was demonstrated over the last year as they met surging demand and shows the agility of its business model as the company was able to prosper in a challenging environment.
“Etsy.com” is no longer the only revenue stream for the company. “Reverb” is a subsidiary of Etsy and operates as a standalone platform selling new and used vintage instruments. Etsy bought “Reverb” for $275 million in cash in August 2019. In Q1 of 2021, GMS for Reverb grew 5x faster than the musical industry as a whole.
Etsy continues to invest in product development to enhance user experience on the platform by improving algorithms and having free shipping for orders over $35.
Etsy had a fantastic quarter, but investor spirits were dampened slightly by the company giving disappointing Q2 forecasts. The online marketplace called for between $493 to $536 million in revenue for the current quarter, representing 15-25% growth, which sent shares sliding after hours.
In 2019 Etsy became the first e-commerce company to offset the impact of global emissions from shipping, highlighting its ecological responsibility.
The bear case for Etsy:
Although it has proven resilient in the past, this does not guarantee future success. However, Etsy continues to invest in its platforms while managing costs to deliver long term growth even in difficult conditions such as a recession. Although there has been significant growth in recent months, Silverman said in the earnings call that they expect to see a deceleration in growth due to lockdowns easing, people will undoubtedly return to traditional retailers. The exposure to new consumers and sellers that Etsy has received over the last year is invaluable and can pave the way for future growth.
Many buyers and sellers are being attracted to Etsy’s platform due to its niche and unique products, which could be as much of a hindrance as a help when it comes to scalability. The nature of their position in the market means that it is unlikely Etsy will ever reach the heights of Amazon, but there is still a significant runway for growth.
So, should I buy Etsy stock?:
The growth in e-commerce, coupled with the niche that Etsy has carved out, makes it a compelling investment despite the stock being expensive. Etsy has demonstrated that it can grow naturally along with making acquisitions that can meaningfully impact the balance sheet. The e-commerce firm is continuing to deliver significant growth with a long term focus, which should reward investors. Etsy appears to be an attractive investment, and a dollar-cost averaging approach could be employed in order to spread the cost basis and mitigate any dips.
Is Etsy profitable?
Yes, Etsy is profitable, taking in a gross profit of $137 million in Q1 of 2021.
Does Etsy pay dividends?
Etsy does not pay a dividend.
Who is Etsy’s CEO?Josh Silverman was appointed as CEO in 2017 and is also on the board of Shake Shack (NYSE: SHAK).
Read more about Etsy below:
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Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.