Etsy Inc: E-Commerce Stock Up 234% Year-Over-Year

esty stockEtsy Stock Up 234% Year-Over-Year, Still Undervalued

Etsy Inc (NASDAQ:ETSY) continues to be one of the best buy-and-hold e-commerce stocks on the planet. While Etsy stock has provided investors with exceptional growth for years, it has done exceptionally well since the stock market crumbled in March, climbing 417%.

Etsy stock has soared 1,670% since 2016, 1,112% since 2017, 607% since 2018, 596% since 2019, and 227% since the beginning of 2020. That gives the stock a compound annual growth rate of 104.3%, which proves that its phenomenal growth in 2020 isn’t a fluke.

That growth trajectory is likely to stay, even in the post-COVID-19 world.

Why does Etsy continue to be so popular? Virtually everything for sale on its platform is unique. In fact, 88% of Etsy buyers say the site sells items that cannot be found anywhere else. And new items being added keeps those buyers coming back. The site also provides users an inexpensive place to sell their own items.

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Chart courtesy of StockCharts.com

Etsy Stock Overview

Etsy is a portal where independent sellers offer all kinds of unique handcrafted goods and vintage treasures, including jewelry, home décor, furniture, toys, art, antiques, and estate sale finds. (Source: “Investor Presentation, October 2020,” Etsy Inc, last accessed December 3, 2020.)

The platform provides sellers with payment processing, promoted listings, on-site advertising, and Web design services.

Etsy Inc’s primary online marketplaces are Etsy.com and Reverb.com. With 69.9 million active buyers and 3.7 million active sellers, the company’s growth strategy is focused on six core countries: the U.S., the U.K., Canada, Germany, Australia, and France.

This strategy has helped the company report record quarterly operating metrics. Of the 138 million all-time buyers on the Etsy marketplace, approximately 50% of them have made at least one purchase in the last year.

Reverb.com, which Etsy acquired in August 2019, sells musical instruments. There you can buy everything from a box of kazoos for $45.00, to an accordion strap for $145.00, to a 1956 “Gretsch” guitar for $244,268.

With a healthy cash balance of $1.5 billion, Etsy Inc is using its funds to generate organic growth and strategic mergers and acquisitions.

The company also uses its cash to repurchase its own shares. From the fourth quarter of 2017 through the third quarter of 2020, Etsy repurchased $222.5 million worth of its own stock.

Very Strong Q3 Results

In late October, Etsy announced that its gross merchandise volume (GMS) revenue for the third quarter ended September 30 increased 119.5% year-over-year to a record $2.6 billion. Year-to-date, its GMS increased 101% to $3.3 billion. (Source: “Etsy, Inc. Reports Third Quarter 2020 Financial Results,” Etsy Inc, October 28, 2020.)

In the third quarter, the number of active Etsy buyers increased 56% year-over-year to 69 million, the number of repeat buyers (at least two purchases per year) increased 80% to 27 million, and habitual buyers (at least six purchases per year) increased 104% year-over-year to five million.

There was also an influx of 14.8 million new buyers and reactivated buyers (those who haven’t made a purchase in a year or more).

Not surprisingly, face masks were a big seller in the third quarter, accounting for 11% of all sales. And they aren’t always going to be a big seller. Excluding mask sales, GMS was up 93% year-over-year at $2.2 billion.

The company’s total revenue was $451.5 million for the third quarter, up 128.1% year-over-year, driven by strong growth in both marketplace and services revenue.

Etsy Inc reported third-quarter 2020 net income of $91.7 million, a 520% increase over the third-quarter 2019 net income. For the first nine months of 2020, net income jumped 210.7% to $200.7 million.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 259.9% year-over-year to $151.4 million and 171.3% over the first nine months to $131.1 million.

Josh Silverman, CEO, commented, “We delivered very strong results during the third quarter, with consolidated GMS and revenue growth up 119% and 128% respectively, evidence of our focused execution, engagement with our buyers and sellers, and our strong brand, underpinned by the unique inventory in our marketplace.” (Source: Ibid.)

For the fourth quarter of 2020, Etsy expects to report year-over-year GMS growth of 65% to 85%, year-over-year revenue growth of 70% to 90%, and an adjusted EBITDA margin of 24% to 27%.

Analyst Take

Etsy Inc has certainly benefitted from changing consumer shopping habits as a result of the COVID-19 pandemic, but that growth, while accelerated, is consistent with the company’s long-term evolution.

Etsy has been able to sustain its growth by driving strong retention and frequency of its existing buyers, as well as by becoming an important shopping destination for new buyers.

Going forward, the company is uniquely positioned to leverage its strong balance sheet, business model, and solid fundamentals to capitalize on its massive, enviable market. That’s good news for Etsy stock investors.