Etsy Buy!: Why Etsy Stock is Making a Crafty Comeback
Etsy, Inc. (NASDAQ: ETSY) is one pandemic has-been that could be getting a second wind.Six months ago, a major selloff was unfathomable for the marketplace of all things original. E-commerce...
Etsy, Inc. (NASDAQ: ETSY) is one pandemic has-been that could be getting a second wind.
Six months ago, a major selloff was unfathomable for the marketplace of all things original. E-commerce was booming and the stock was peaking above $300.
It's been downhill since for Etsy shareholders with sub-$100 prices setting in for the first time since July 2020. Things may be changing.
Late last week Etsy ran 25% off its bottom mainly due a bargain-hunting Nasdaq rally. But the company's solid start to the new year and growth initiatives may point to a comeback story.
How Did Etsy Perform in Q1?
Earlier this month Etsy reported first-quarter earnings per share (EPS) that were down significantly from the prior year period but ahead of the analyst consensus. The company also beat on revenue, but with the market in a foul mood the stock dropped nearly 17%. Management's tepid second-quarter guidance was all some investors needed to hear to don their hand-crafted Etsy bear costumes.
Aside from the top and bottom-line outperformance, there were some overlooked bright spots in the quarterly update. First, revenue was up more than 5%—an impressive result considering Etsy was booming in the winter period last year when Covid restrictions were in place.
Second, management acknowledged a need to invest in new projects to stimulate growth in the post-pandemic economy. Spending on product development jumped 67% last quarter and is expected to be a focus going forward.
What are Etsy's Growth Drivers?
For Etsy, finding new sources of growth is still about attracting sellers and buyers to its platform. Sellers want more services and tools to successfully operate their businesses. Buyers want a wider assortment of goods, unique features, and customer service. This requires the development of new technologies that strike a chord with e-commerce participants while also maintaining the company's goal—"keep commerce human".
To cater to more merchants and consumers, Etsy is expanding outside of its core marketplace. It now has three additional brands that address niche markets—Reverb for music recommerce, depop for used clothing, and elo7 for handmade goods in Brazil.
And while women represent approximately 75% of Etsy's overall buyer base, it's the men that could hold the key to growth. Reverb, tailored to Millennial and Gen X males, is gathering a loyal base in the U.S. and six international markets. New products tailored to men and women will be intended to drive growth over the next few years and reduce Etsy's dependence on its core marketplace.
Has Etsy Stock Reached an Inflection Point?
Etsy believes that it has just scratched the surface in the very large and growing global e-commerce market. The company estimates that it holds less than a 3% share of the online shopping space and a tiny fraction of the broader retail market. It is a reasonable self-assessment that highlights why it is expanding into Brazil, resale, and even musical instruments.
As Etsy spreads its wings beyond its core arena of handmade gifts and gadgets, opportunities for growth are vast. Whether management is able to gain traction in new markets remains to be seen, but early progress has been good. After all, the business is still growing beyond a phenomenal 2021—and that's despite a slowing consumer shopping environment.
From a technical analysis standpoint, the stock seems to have found support at the long-term $90 level. Last week's bounce from that area came in above-average volume. It is a small sample size but could be the start of an extended uptrend. The short-term stochastics and MACD also point to a near-term rise.
The downside also looks limited from Wall Street's perspective. Not a single research firm has a sell rating on the stock and even the most cautious price target (Loop Capital Market's $95) is above the current price. At the other end of the spectrum are eight analysts that have called Etsy a buy even after the soft near-term guidance. Over the longer haul, most bulls see a potential double.
Granted, overall market conditions will need to improve for Etsy to mount any sort of meaningful rally. If and when the Nasdaq recovers, beat up pandemic winners like Etsy may have a memorable reunion tour. As the company ventures into other areas of e-commerce, a crafty resurgence may be in the works.
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