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Forget Amazon & Shopify and Buy Cheaper E-Commerce Stock Etsy?

Benjamin Rains
·4 mins read

E-commerce has been on the rise for years and the coronavirus lockdowns and subsequent social distancing provided a massive jolt that might have helped push forward the digital sales timeline. The last six-plus months have highlighted why Target TGT, Walmart WMT, and countless other retailers have gone all-in on e-commerce to help fight back against Amazon’s AMZN encroachment.

Meanwhile, one less-heralded e-commerce stock, Etsy ETSY, looks like it might be worth buying.

Digital Arts & Craft Fair

Etsy is an e-commerce marketplace that allows individuals and small businesses to sell everything from clothing to art and home décor. The Brooklyn-based company’s tagline is: “Find the perfect handmade gift, vintage & on-trend clothes, unique jewelry, and more.” Etsy has carved out a solid space within the booming e-commerce market by selling items consumers might not find on Amazon and eBay EBAY.

The online retailer was founded in 2005 and went public in 2015. Etsy, which also owns musical instrument marketplace Reverb, has tried to build a loyal customer base by providing a somewhat more quaint and local business vibe.

 

 

 

 

 

 

 

 

 

 

 

Other Fundamentals

Etsy put a strong run of top-line growth together well before the coronavirus, with its annual revenue up 36% in FY19 and 37% in FY18. The company’s Q1 FY20 sales climbed 35% for the period ended on March 31. Etsy then reported blowout, pandemic-driven second quarter results in early August.

The company’s adjusted earnings skyrocketed over 400%, with its Q2 revenue up 137%. Both its marketplace and services—such as promotional ads—sales climbed over 110%. Etsy did sell $346 million worth of face masks during the period, which accounted for 14% of its $2.69 billion in total gross merchandise sales.

This one-time boost likely, and hopefully, won’t be repeated. Luckily, Etsy’s non-mask sales soared 93%, up from the 79% growth the firm saw in April. This helped showcase that buyers who might have come to Esty for a mask, stayed for something else. It is also worth noting that Etsy’s actives sellers jumped 35%, with buyers up 41%.

Etsy’s ability to expand during these unusual economic conditions helped its stock price soar. The stock is up 220% in 2020, against Shopify’s SHOP 170% and Amazon’s 73%. This is part of a much longer and larger run that’s seen Etsy shares skyrocket 920% in the last five years.

The actual stock price shouldn’t matter as much to investors, but it’s hard to ignore the fact that Etsy trades at around $145 per share. This comes in well below Shopify’s $1,070 a share and Amazon’s nearly $3,200. And Etsy trades at 10.3X forward 12-month sales, compared to SHOP’s 41.2X. Etsy also trades at a discount compared to its own 12-month high even though its stock price touched new all-time highs Thursday.

Outlook

Zacks estimates call for Etsy’s adjusted Q3 earnings to soar 383% to $0.58 a share, on 110% stronger sales. This growth is projected to continue to the tune of 65% sales expansion in Q4 and 108% adjusted earnings growth.

Etsy’s total revenue is projected to surge 85% from $818 million in FY19 to $1.51 billion in fiscal 2020, with its adjusted EPS figure projected to climb 172%. The nearby chart also shows how much Etsy’s earnings outlook has improved.

 

 

 

 

 

 

 


Bottom Line

Etsy’s earnings revisions help it land a Zacks Rank #1 (Strong Buy) right now, alongside its “A” grade for Growth in our Style Scores system. Let’s also remember that e-commerce accounted for 16% of total U.S. retail sales in the second quarter despite perfect conditions, up from roughly 11% in the year-ago period. This means the market still has miles of runway left.

Etsy is set to release its Q3 FY20 results on October 28, which means some investors might want to hold off for updates. Nonetheless, Etsy might be worth considering as both a coronavirus bet and a longer-term e-commerce pure play that costs far less than some of its peers.

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Target Corporation (TGT) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
eBay Inc. (EBAY) : Free Stock Analysis Report
 
Etsy, Inc. (ETSY) : Free Stock Analysis Report
 
Shopify Inc. (SHOP) : Free Stock Analysis Report
 
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