Categories Analysis, Consumer

Etsy (ETSY) thrives after COVID helps it in an unexpected way

Added around 10 million new customers and reactivated more than five million dormant customers in the most recent quarter

Early this year, an unexpected spike in the demand for handmade face-masks made Etsy, Inc. (NASDAQ: ETSY) tweak its assortment to ensure uninterrupted supply. The pandemic-driven change in people’s shopping behavior proved to be a game-changer for the company, which seems to have entered a new phase of growth.


Online retail sales stand strong during this holiday season


The market responded positively to the record sales growth in the last few quarters. Etsy’s shares have been spiraling upward after slipping to a two-year low in mid-March under the impact of coronavirus. Meanwhile, there is apprehension that the current level of growth would not be sustained in 2021, with the negative price target adding to the bleak sentiment.

Buy ETSY?

But ETSY continues to be an investors’ favorite for its unique and successful business model that stayed unscathed by the onslaught of the likes of Amazon (AMZN) and eBay (EBAY). The stock might not disappoint long-term investors and experts recommend buying it. The New York-based e-tailer of handmade items and craft supplies banks on its go-to-market initiatives to maintain customer retention and drive future growth.

The company has struggled to meet the huge demand for face-mask, which has become a fast-moving commodity due to the role it plays in preventing the spread of coronavirus. The number of active buyers and sellers has been growing sharply amid strong adoption of the portal, resulting in record growth in revenues from both merchandise sales and advertising.

Innovation

It is a fact that innovations in the digital interface and algorithm made the platform more user-friendly, contributing to sales growth. Initial estimates show that the efforts to pull forward the holiday season to help those looking to shop early boosted sales in the current quarter. However, margins have come under pressure from investments in infrastructure and costs related to hiring. In the final months of the year, performance was also affected by seasonal factors and macro headwinds. The management has adopted a cautious stance in its future plans, considering the continuing uncertainty.

We’ve got new buyers whose first purchase was not a face mask and those new buyers are more active than new buyers were a year ago even putting aside a second or third purchase that was a face mask. For new buyers whose first purchase was a face mask, as you often expect, their second and third purchases were more often face masks. So what we take from that is that new buyers whose first purchase was not a face mask likely we’ll have a lifetime value as good or more good than previous cohorts.

Josh Silverman, chief executive officer of Etsy

Record Customer Growth

The company added nearly 10 million new customers and reactivated more than five million dormant customers in the third quarter. Revenues more than doubled to $452 million in the September-quarter. That translated into a spike in earnings to $0.70 per share, which also topped the Street view. Taking a cue from the positive outcome, for the fourth quarter, the management projects fiscal performance that is on par with the third-quarter.


Read management/analysts’ comments on quarterly reports


Etsy’s stock maintained its uptrend in the early hours of Tuesday’s regular session and traded at $195.00. In the last six months alone, the value more than doubled.

Looking for more insights?

Read the full conference call transcript here. It’s free!

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