E-commerce has disrupted the traditional brick-and-mortar retail space over the last few years. Stay-at-home restrictions due to the pandemic have triggered faster growth of several e-commerce companies.
The temporary closure of physical stores due to lockdowns played havoc on several retailers. But e-commerce companies like Etsy and Wayfair are significantly benefiting from a surge in online purchases of categories like home goods as more customers are restricted to their homes in this pandemic.
We will use the TipRanks’ Stock Comparison tool, to compare these two e-commerce players alongside each other to see which stock offers the most compelling investment opportunity.
Etsy is one of the few companies which is thriving despite an extremely challenging business environment thanks to the rapid shift to online shopping. Etsy is an online marketplace that connects sellers of unique products with interested buyers. It provides small businesses and artisans an e-commerce platform to list their handmade goods and vintage items.
The company charges its sellers fees for listing their goods and completing transactions. It also derives revenue through services like on-site advertising and shipping label services.
Etsy’s second-quarter revenue grew 137% year-over-year to $429 million, surpassing analysts’ estimate of $330 million. GMS (gross merchandise sales) rose 146% to $2.7 billion with just mask sales contributing $346 million. Non-mask GMS grew 93% in the quarter driven by strong sales of homewares and home furnishings as well as craft supplies. Active sellers increased 34.6% to 3.14 million while active buyers were up 41.0% to about 60.3 million.
The second-quarter EPS jumped 436% year-over-year to $0.75 and crushed analysts’ forecast of $0.39. Meanwhile, adjusted EBITDA expanded by 1,320 basis points to 35.1%.
Etsy is taking various initiatives to make its marketplace more attractive and convenient. The company expanded Etsy payments platform to five additional countries in the second quarter and now offers Etsy payments in 43 countries in 19 currencies. The company also stepped up its marketing investments to create more visibility. And it continues to invest in technology to enhance its platform.
Etsy is optimistic about the growth prospects for Reverb, an online platform to sell new and used vintage instruments, which it acquired in August 2019. Reverb delivered GMS of $227 million in the second quarter. Moreover, Reverb has increased its seller transaction fee to 5% from 3.5% and plans to direct the incremental revenue towards marketing, customer engagement, and enhancing seller tools and services.
Etsy’s stellar second-quarter results prompted Roth Capital analyst Darren Aftahi to upgrade his rating to Buy from Neutral. The five-star analyst also raised his price target to $160 from $90. Aftahi felt that the company’s third-quarter guidance for GMS growth of 80% to 110% and adjusted EBITDA margin of 28% to 32% was impressive.
In a research note, he stated, “2Q numbers and 3Q guide well-exceeded expectations and COVID trends have continued into 3Q (July GMS +152% y/y) as the halo impact is more persistent than anticipated.”
He added: “With non-mask GMS up ~93% y/y and new buyer retention trending positively, we believe these trends are too strong to discount, with incremental catalysts for growth via investment while maintaining healthy margins.” (See Etsy stock analysis on TipRanks)
The Street is also upbeat about Etsy as reflected in the Strong Buy consensus rating that breaks down into 15 Buys and 1 Sell. The average price target of $150 suggests an upside of 22.90% over the next year.
The COVID-19 pandemic has created unforeseen opportunities for online home goods retailer Wayfair. The rapid spread of coronavirus forced people to work from home, and boosted the demand for home furnishings and other related merchandise.
Wayfair’s second-quarter revenue of $4.30 billion registered a growth of 83.7% as consumers shifted their discretionary spending towards home goods. The company’s US revenue increased 82.5% while international business surged 90.5%. Wayfair activated nearly five million net new customers in the second quarter, which was more than the combined figure for the last four quarters.
The company’s adjusted EBITDA margin jumped to 10.2% from -3.0% in the second quarter of 2019. Strong revenue growth and higher margins helped Wayfair deliver an adjusted EPS of $3.13 in the second quarter compared to an adjusted loss per share of $1.35 in the prior-year’s second quarter. Overall, the company easily beat analysts’ revenue expectation of $4.06 billion and EPS of $1.04.
Following the results, Citi analyst Nicholas Jones raised his price target for Wayfair stock to $225 from $130 but maintained his Sell rating. He raised his estimates for the company based on better-than-anticipated trends.
However, Jones pointed that, “Though Wayfair has benefited from a sharp shift from offline to online amid Covid, we expect its profitability to come under pressure as social distancing and business closure measures loosen and consumers have greater alternatives for their discretionary income. Accordingly, we maintain a Sell rating.” (See Wayfair stock analysis on TipRanks)
The Street has a Hold consensus analyst rating for Wayfair stock based on 11 Buys, 11 Holds, and 5 Sells. The average price target of $300.27 implies a 0.49% fall over the next year.
Which e-commerce story is a better buy?
Etsy stock has rallied 175% so far this year while Wayfair stock has surged 234%. Both companies are seeing a record number of new and repeat customers. However, the unprecedented growth rates in the second quarter might not continue in the subsequent quarters.
The gradual reopening of physical stores of rivals is expected to impact Wayfair more than Etsy. And Etsy’s asset-light business model makes it more profitable.
Based on the upside potential over the next 12-months and the consensus analyst rating, Etsy looks better placed.
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