Categories Analysis, Retail

ETSY Stock: A look at the factors to consider before investing in Etsy

The management is bullish on growth prospects and expects to achieve double-digit sales growth in the fourth quarter

Ecommerce companies have been among the biggest beneficiaries of the pandemic-fueled shopping boom, and the story of specialty retailer Etsy, Inc. (NASDAQ: ETSY) is no different. The Brooklyn -based company, which mainly deals in handmade items and craft supplies, has expanded its buyer base considerably since last year.

The Stock

Shares of Etsy got a major boost from the positive third-quarter results and peaked in late November. But, the stock changed course since then and retreated to the pre-earnings levels this week. The dip has made it more affordable, creating a fresh investment opportunity. On average, analysts have assigned moderate buy rating on the stock, with a 12-month price target of around $275 that represents a 19% uptick. If the recent performance is any indication, the stock has what it takes to enrich investors’ portfolios.


Read management/analysts’ comments on quarterly reports


The management is quite bullish on Etsy’s growth prospects and sees double-digit sales growth in the final three months of the fiscal year. Etsy enjoys an edge over rivals due to the uniqueness of its merchandise. As the company adds new sellers, there is a corresponding increase in the number of buyers, thanks to the two-sided business model.

Margin Growth

Over the past few years, Etsy’s quarterly earnings either matched or beat analysts’ forecasts. There has been a steady increase in operating margin, reflecting the favorable spread of fixed costs and minimal capital expenditures. The full-fledged platform offers ample room for growth; plans are afoot to expand to new geographies including Europe and Asia.

trending stocks high volatility

In the September quarter, revenues moved up 18% annually to $532. 4 million and topped expectations. However, higher operating costs weighed on the bottom-line performance and earnings dropped to $89.9 million or $0.62 per share from $91.8 million or $0.70 per share last year but came in slightly above the consensus forecast.

Sustainability

While the company has been able to retain the customers it acquired during the pandemic, it needs to be seen whether the buyer growth and purchase frequency are sustainable. To a certain extent, Etsy’s growth prospects would depend on how the new shopping trend brought about by the pandemic shapes up going forward.


Amazon.com stock research summary | Q3 2021


It’s gratifying to see how shoppers have loved the experience they’ve had in Etsy and are coming back for more. Even in a world of greatly expanded choice, Etsy is getting better as it gets bigger. As fast as e-commerce has grown over the past 18 months, we have grown substantially faster, indicating that we’re gaining and we’re expanding our TAM with depth across many categories and geographies. We’re moving in a different direction than commoditized marketplaces and have more conviction than ever to invest with discipline in what we see as a multi-trillion-dollar market opportunity. And to strengthen our positioning for further growth in 2022 and beyond.

Joshua Silverman, chief executive officer of Etsy

Etsy’s stock traded slightly higher in the early hours of Tuesday, after closing the previous session higher. The stock has gained about 28% since the beginning of the year and mostly stayed above the long-term average.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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