Online shopping is here to stay for the foreseeable future and Etsy is the one e-commerce stock that I am looking to buy in this digital era.
Etsy (NASDAQ: ETSY) has become a go-to name in the e-commerce world, providing a platform for many people across the world to sell unique, vintage, and handmade products to the millions of people searching for that special, quirky gift. Founded in 2005, it IPO’d in 2015 and it really found its footing during the pandemic with triple-digit growth between 2019 and 2020.
This company has many positives but let’s take a look at the reasons that this is the one e-commerce stock I am buying right now.
A look at Etsy’s financials
As with most e-commerce companies, Etsy has several streams of revenue. However, unlike most, Etsy’s business model is vertical rather than horizontal. This is because, as a platform, it caters to both sellers and buyers.
Etsy earns revenue from listing fees, commission, payment processing fees, and ad sales to sellers. To learn more about how Etsy makes money you can click here.
In its most recent earnings report, Etsy reported $3.1 billion in gross merchandise sales (GMS) which is up 132% year-over-year (YoY). Revenue was also up 141% to $550 million for the quarter, whilst net income was $143.8 million, up a huge 1,048% YoY. Its diluted earnings per share came in at $1.00. This was a stellar quarter, setting off 2021 nicely as it showcased its continued growth potential.
What I like about Etsy
Etsy is an e-commerce company with huge potential. Currently, it has only scratched the surface of its estimated market opportunity, with an estimated global market potential of $437 billion by 2023. Indeed, the company has already shown strong growth through its financials alone. However, beyond this, it is already expanding globally with a huge 42% of its GMS for Q1 coming from outside of the U.S. This is a 36% increase from the year before and its future expansion throughout India will see it become even more of a global powerhouse.
Q1 also saw a significant rise in active sellers and active buyers, reported at 4.7 million and 90.7 million people respectively. The beginning of the pandemic saw Etsy’s sales surge for facemasks in particular, but, even now, the number of people using its services is not going down, but rather, refocussing on new trends. For example, searches on the platform for outdoor bars and accessories are up 234% whilst searches for patio and garden furniture are up 166%. Etsy has indeed become not just a go-to site for quirky gifts, but as an e-commerce site for all your needs.
The site itself is also trying out new ways to engage people by incorporating video listings for its merchants, this will allow merchants to showcase their products in another medium which will hopefully see a boost in sales. When the merchants do well, so does Etsy, this is a win-win for all involved.
Risks to Etsy’s share price
Off the back of Etsy’s stellar Q1 results, the company stated that they expect a growth slowdown for the next quarter with growth estimated between 15 – 25% for Q2. This looks rather underwhelming compared to the triple-digit growth seen last year. But that is exactly it, the growth last year was huge and pandemic fuelled, whereas things are now a bit more settled.
However, the lackluster expectations definitely gave investors a pause with its stock tumbling 7% in after-hours trading when the Q1 report came out. If Etsy doesn’t meet or even surpass its predictions in the next quarterly report investors can expect its stock to fall again.
Etsy’s growth potential
Despite any potential reactions from overly flighty investors, Etsy is pretty much an unstoppable company. It has the momentum, it has the people, and it has the drive. Etsy is also considered to be a friendlier alternative to Amazon, one which aims to help local businesses rather than undercut them.
Currently, Etsy’s share price is down about 5% since the start of the year, but, comparing against last year’s performance, it is still up more than 100% YoY. Esty’s stock price will recover, along with the wider market, and investors will see a return to the high growth that we expect from this e-commerce stock.
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