Etsy Inc (NASDAQ:ETSY) Stock Doubled in Six Months; More soon?


A fast-growing e-commerce stock that isn’t Amazon

Over the past decade, the e-commerce industry has grown rapidly and the COVID-19 pandemic has only added fuel to the fire. When many brick-and-mortar retailers had to close during the shutdowns, consumers had no choice but to turn to online sellers.

And that means e-commerce platforms like Amazon.com, Inc. (NASDAQ:AMZN) were making money in spades. But Amazon, while the most dominant player in the game, isn’t the only company to benefit from the pandemic-induced e-commerce boom. Small platforms also get a slice of the action.

Etsy Inc. (NASDAQ:ETSY), for example, is best known as a niche e-commerce website focused on handmade items and craft supplies. As you’d expect, Etsy doesn’t have as many product categories as Amazon, and it has a much smaller customer base. And yet, its shareholders have become among the biggest winners of the recent e-commerce boom.

Take a look at the table below. This shows that in the past six months alone, Etsy’s stock has more than doubled. And year-to-date, the company’s stock has returned a staggering 255%.

This is far superior to the performance of any benchmark.

Etsy Inc stock chart (NASDAQ:ETSY)

Chart reproduced courtesy of StockCharts.com

Additionally, Etsy’s stock significantly outperformed Amazon’s stock. To give you an idea, AMZN stock is up about 67% year-to-date, which certainly isn’t bad, but not nearly as good as what ETSY stock has delivered over the course of the year. same period.

As you would expect with its stock price soaring, Etsy’s business is running full steam ahead.

According to its latest earnings report, the company generated $451.5 million in revenue in the third quarter of 2020, representing a 128.1% year-over-year increase. (Source: “Etsy, Inc. Reports Third Quarter 2020 Financial Results”, Etsy Inc, October 28, 2020.)

Etsy’s gross merchandise sales (GMS), a critical measure of an e-commerce platform’s performance, were $2.6 billion in the third quarter. That’s a 119.4% year-over-year increase.

One of the reasons people tried different e-commerce platforms this year was to buy protective face masks – they were sold out at most vendors in the early months of the COVID-19 outbreak. 19. And the masks were Indeed one of Etsy’s business growth engines.

But here’s the thing: Even excluding mask sales numbers, the company’s third-quarter GMS still improved 93% from a year ago. (Source: “Third Quarter 2020 Financial Results”, Etsy Inc, October 28, 2020.)

In fact, Etsy has seen GMS grow across the board. The table below shows the performance of Etsy’s top six traditional categories, excluding sales of face masks.

Category Q3 2020 QGM Year-over-year increase
Homeware and Furnishings $772.0 million 126%
Jewelry & Accessories $380.0 million 61%
craft supplies $312.0 million 114%
Clothes $254.0 million 59%
Paper and party supplies $109.0 million 37%
Beauty and personal care $84.0 million 164%

(Source: ibid.)

As you can see, each of these categories provided significantly better results compared to the prior year period. Even paper and party supplies, which you wouldn’t think would do well during a global pandemic, saw a 37% growth in sales.

The final figure was even more impressive. In the third quarter, net income for Etsy Inc was $0.70 per share, up 483% from the same period a year earlier.

Plus, Etsy’s business generates cash flow, a feature not always found in the fast-paced tech world. In the first nine months of 2020, the company’s free cash flow increased 271% year over year to $431.2 million.

And if you’re wondering if the upward trend in those numbers can continue, take a look at the company’s advice.

For the fourth quarter of 2020, Etsy management expects $2.7-3.1 billion from GMS and $459.0-513.0 million in revenue. Unsurprisingly, these numbers are well ahead of last year’s fourth quarter GMS and revenues of $1.7 billion and $270.0 million, respectively.

Even more important is the implied sequential comparison: even if Etsy Inc hits the lower end of its guidance range, it would have improved both its GMS and revenue quarter over quarter.

Of course, the fourth quarter tends to be strong due to the holiday shopping season. But the guidance range suggests the company’s growth momentum could continue.

analyst’s grip

The US stock market has recently received a strong boost from news of effective vaccines against COVID-19.

The economic recovery is already underway, but I don’t think it will be an overnight process. It will likely take several months to vaccinate everyone, and it could take even longer for brick-and-mortar retail stores to return to pre-pandemic sales levels.

All things considered, I’d say there’s still room for Etsy Inc to expand its presence in the e-commerce world. And that could be a reason for investors to continue to love Etsy stocks.

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