Shares of Etsy Inc. (NASDAQ: ETSY) were up 3% on Monday. The stock has dropped 61% year-to-date and 50% over the past 12 months. Etsy was one of the big pandemic winners who is now seeing the benefits wane with the reopening of economies. Despite this, there is a bullish sentiment around the stock as many experts believe the company has meaningful growth potential in the long term. Here are a few points to consider if you have an eye on this stock:
Sales growth
In the first quarter of 2022, Etsy’s gross merchandise sales (GMS) increased 3.5% year-over-year to $3.3 billion and revenue rose 5.2% to $579.3 million. Marketplace revenue grew 3.4% while services revenue was up nearly 11%.
In the year-ago quarter, GMS grew 132% helped by pandemic-related lockdowns and stimulus payments. Although this is a tough comparison, Etsy’s sales growth has slowed down compared to the past three quarters.
In Q1, sales were impacted by a rebound in global mobility and headwinds related to inflation and geopolitical events. GMS for the Etsy marketplace alone was $2.8 billion, which was down 2% YoY.
Despite the slowdown, there is optimism that the company is still maintaining the growth in revenue. For the second quarter of 2022, GMS is expected to range between $2.9-3.2 billion and revenue is estimated to be $540-590 million. Revenue is expected to be up about 7% at the midpoint compared to last year.
Profitability
Net income in Q1 fell 40% YoY to $86.1 million, or $0.60 per share. The decline was driven mainly by higher employee compensation-related expenses as total headcount increased around 71% YoY.
Adjusted EBITDA fell 13.5% to $159.2 million while adjusted EBITDA margin was down 600 basis points to 27%. For the second quarter, adjusted EBITDA margin is expected to be approx. 25%.
User base
In Q1, the total number of active sellers on Etsy increased nearly 63% to 7.6 million. This includes 5.5 million active sellers on Etsy.com. The total number of active buyers rose 5% YoY to 95.1 million. Etsy.com had 89.1 million buyers, reflecting an increase of 7 million new buyers during the quarter.
The company estimates that Etsy.com had about 180 million unique visitors every month and over 100 million lapsed buyers, meaning those who haven’t shopped on its platform over the past year.
As per the company’s estimates, around 30% of adult women in the US and UK shopped on Etsy at least once in the past 12 months and about 10% of adult men in these two countries shopped on the platform at least once during the same period. This shows Etsy has potential to further expand its user base.
Market expansion
Etsy’s all-time buyer penetration remains below 50% across all seven of its core markets. The company’s two largest markets are the US and UK and its penetration rates in the next 15 markets beyond these two are about 80% lower than them.
The combined population in those 15 countries is 58% larger than the US. Although Etsy’s near-term strategy is to continue to focus on its seven core markets, the company believes it has significant opportunity for market expansion in the long term.