Etsy (NASDAQ:ETSY): Undervalued and Can Keep Growing Post-Pandemic


Etsy (NASDAQ:ETSY) continues to profit from robust shopper spending, which retains driving lasting progress post-pandemic. The stock is still down about 66% from its all-time-high ranges from November 2021, a time when most e-commerce shares had been buying and selling at absurd valuations that had been powered by their pandemic-driven progress.

However, Etsy has managed to develop previous its pandemic-induced numbers. Despite latest issues of a slowdown in financial progress, shoppers’ buying energy stays very robust, ensuing within the firm reaching record revenues in its most up-to-date quarterly outcomes. Combined with shares nonetheless buying and selling at engaging ranges relative to the corporate’s future earnings projections, I’m bullish on the stock.

Strong Consumer Spending is Driving Record Revenues

The success of Etsy may be closely influenced by shopper spending and the extent of disposable revenue that consumers have out there. The distinctive handmade gadgets and classic gems showcased on Etsy’s market usually are not precisely requirements. Their gross sales are largely associated to discretionary spending. This was drastically illustrated amid the pandemic when authorities checks and extra liquidity allowed shoppers to overspend on such items. Specifically, in Fiscal 2020 and Fiscal 2021, Etsy’s revenues grew by 110.9% and 35.0%, respectively.

With fears of a looming recession dominating the market final 12 months, most traders anticipated an affordable correction in Etsy’s revenues that might normalize the prior years’ pattern. Yet, Etsy managed to develop previous its already inflated numbers. Not solely did the corporate put up 10.2% progress in revenues in Fiscal 2022, however its This autumn outcomes, specifically, had been spectacular as they implied an acceleration in its general efficiency.

Specifically, in This autumn, revenues came in at a record $807.2 million, up 12.6% year-over-year, together with Etsy’s take price (i.e., revenues divided by consolidated Gross Merchandise Sales) rising to twenty%.

In the meantime, administration’s steerage factors towards one other thrilling 12 months forward. The firm sees file Q1 revenues, that are anticipated to land between $600 million and $640 million, implying a year-over-year improve of about 7%.

To me, it is spectacular that Etsy continues to develop regardless of a few of its greatest friends struggling. Let’s take Amazon (NASDAQ:AMZN), as an example, which acts as a bellwether for e-commerce gross sales. In This autumn, Amazon’s product gross sales (complete revenues minus AWS revenues) truly fell by 1.3%. Further, Amazon’s Q1 steerage, projecting year-over-year internet gross sales progress of between 4% and 8%, suggests one other quarter of declining product gross sales, provided that a lot of the firm’s progress is being carried by its Amazon Web Services (AWS) division, which noticed 20% progress in This autumn.

A Couple of Interesting Points Regarding Etsy’s Future Growth

There are additionally a few attention-grabbing factors to make concerning Etsy’s future revenues. Firstly, the FED’s resolution to hike charges by 25 foundation factors (bps) means that it believes the financial system is robust sufficient to maintain the hike. In different phrases, the FED possible believes the financial system ought to be capable of maintain robust spending transferring ahead, which is nice information for Etsy. If this wasn’t the case, we might have seen a pause in price hikes (it is a extra difficult matter, however this primary aspect holds true) in an try to gas the financial system.

Secondly, even when we had been to see a decline in shoppers’ buying energy, Etsy’s gross sales might nonetheless be sustained at lofty ranges and even develop additional. This is as a result of, other than its core Etsy platform, the corporate additionally owns and operates a couple of extra companies, like Depop and Elo7. With these two platforms specializing in second-hand garments and musical devices, respectively, Etsy may gain advantage if shoppers go for used items following decrease disposable revenue.

Strong Profitability & Growing Buybacks: A Positive Catalyst

Etsy’s most vibrant catalyst for driving its stock greater within the close to time period is the corporate’s robust profitability and rising buybacks. At first look, Etsy posted a internet lack of $694.3 million in Fiscal 2022. However, this was solely as a result of a $1.0 billion impairment cost in Q3.

On an adjusted foundation, which excludes such non-cash gadgets, the corporate’s adjusted EBITDA margin stood at a passable 28% for the 12 months. Management’s Q1 steerage targets a decrease adjusted EBITDA margin of about 26% to 27%, possible as a result of greater advertising and marketing bills, however once more, margins stay at fairly enough ranges. In the meantime, analysts anticipate the corporate’s earnings per share to hit a brand new file of $4.69 by Fiscal 2024.

Etsy additionally seems to anticipate considerably enhancing earnings by then, as signaled by its quickly rising share repurchases. In 2022, the corporate repurchased $425.8 million price of stock, round 41% greater than it did in 2021.

Is ETSY Stock a Buy, According to Analysts?

Turning to Wall Street, Etsy has a Moderate Buy consensus score based mostly on 12 Buys, 9 Holds, and one Sell assigned previously three months. At $138.75, the typical ETSY stock forecast implies 32.3% upside potential.

The Takeaway

Overall, Etsy’s capability to maintain rising revenues on high of its pandemic-induced outcomes is kind of exceptional. This success may be attributed not solely to robust shopper spending but in addition to the choice of shoppers for its platforms.

In the brief time period, Etsy’s profitability is anticipated to take successful. However, in keeping with Wall Street’s estimates for earnings per share of about $4.69 by 2024, Etsy’s profitability has a lot of room for enchancment. In reality, this specific estimate suggests a ahead P/E of about 22.8 on the stock’s present value, which makes for a quite engaging a number of, for my part, regardless of this projection being two years forward.


The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.

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