Etsy
ETSY
shares have more than double Shopify
SHOP
, Zoom Video
ZM
, and many other pandemic standouts since the market’s March 2020 lows. The arts and craft fair-style e-commerce firm has posted three-straight quarters of roughly 130% or higher revenue growth.
Yet Wall Street has taken its foot off the gas on the stock and some are worried that Etsy won’t be able to match the hype in 2021 as mask sales slow and the economy reopens. Clearly, it would be almost impossible to follow up FY20’s 111% revenue growth, but investors might still want to consider buying Etsy as a long-term e-commerce play.
Way Beyond Masks
Etsy is an e-commerce marketplace that allows individuals and small businesses to sell everything from clothing and jewelry to art and home décor. The online retailer that was founded in 2005 and went public in 2015 also owns musical instrument marketplace Reverb. And Etsy’s two-sided online marketplace has become far more popular during the pandemic.
The Brooklyn-based company has carved out a solid niche within the booming industry by selling items consumers might not be able to find on Amazon
AMZN
and eBay
EBAY
. Etsy makes money from every transaction, as well as advertising and paid search, and it is constantly making updates to help both sellers and buyers.
Etsy was the beneficiary of a crazy year that saw millions and millions of people buy face masks. The firm’s second quarter revenue soared 137%, up from 35% growth in the trailing two periods. Etsy then posted roughly 128% sales growth in Q3 and Q4. The company’s full-year gross merchandise sales soared 107% to $10.3 billion, with FY20 revenue up 111% to $1.7 billion.
Luckily, this growth was not driven only by mask sales, with its GMS excluding masks on the Etsy marketplace up 118% in the fourth quarter to $3.3 billion. In fact, only 4% of the Etsy marketplace’s overall GMS was from mask sales in the last quarter of 2020.
This is encouraging news for the company, investors, and sellers. And Etsy’s overall active sellers climbed 62% in 2020 to 4.4 million, while its active buyers surged 77% to 82 million.
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What Else
Etsy stock has soared 365% in the last year, as part of an insane 2,155% climb over the past five years to blow away Amazon, Nvidia
NVDA
, and countless other growth names. The e-commerce firm’s stock is still up 60% in the last six months. But a recent pullback has cooled things down and likely sets up a better entry point for investors who have missed out on the rally, or who want to buy more.
Etsy closed regular hours Thursday at $196.20 a share, which puts it 20% off its March 1 records of roughly $250 a share. The recent downturn has also pushed the stock well below neutral levels (50) when it comes to RSI at 41.
The movement has also helped recalibrate its valuation picture, with it trading 30% below its highs at 11.3X forward 12-month sales. This also represents a big discount to Shopify’s 31.5X and not too far above established titan Microsoft’s
MSFT
10.1X.
Investors should also know that Etsy is far from a one-hit pandemic wonder, with its 2019 and 2018 sales both up roughly 36%. Overall, the firm averaged over 33% revenue growth between 2019 and 2015—the year it went public.
Bottom Line
Zacks estimates call for Etsy’s fiscal 2021 revenue to jump 23% above the hard to compare year where people had no choice but to shop online to pull in $2.1 billion. The company is then expected to do another 20% sales expansion in FY22 to reach $2.5 billion.
Etsy is also expected to grow its adjusted earnings both this year and next and the nearby chart shows just how much its overall earnings outlook has improved since it topped our Q4 estimates at the end of February.
Etsy’s earnings revision help it grab a Zacks Rank #1 (Strong Buy) right now. The stock also earns an “A” grade for Growth and a “B” for Momentum in our Style Scores system, and 11 of the 14 broker recommendations Zacks has are “Strong Buys.”
There could obviously be more near-term selling pressure for Etsy and other tech stocks. But investors with long-term horizons might want to consider buying this niche e-commerce play down 20% from its highs that’s also far cheaper in terms of both price and valuation than Shopify and way less expensive than Amazon’s $3,000 a share. And let’s not forget that e-commerce still has miles of room left to grow.
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