Pat yourself on the back if you bought Etsy (Etsy Stock Quote, Chart, News NASDAQ:ETSY) early on during the pandemic, but for those of us looking on from the sidelines there’s probably still room to grow with this stock, says portfolio manager James Telfser of Avenine Asset Counsel.
Etsy’s rise in 2020 has come via the market’s favouring of the e-commerce sector, where stocks like Shopify, Amazon and Wayfair have cleaned up in the stay-at-home economy brought on by COVID-19.
And Etsy has been a winner, too, going from $44 per share at the start of the year to now the $150 mark.
Investors have responded to glowing numbers from the online marketplace for homemade crafts and products. Revenue grew by 137 per cent to $429 million in its latest reported quarter, its second quarter 2020, delivered in early August, while gross merchandise sales (GMS), the dollar value of items sold on the platform, rose 146 per cent to $2.7 billion. Earnings came in at $0.75 per share compared to the consensus expectation of $0.39 per share.
“If you do believe that their addressable market is quite large —we’re talking hundreds of billions of retail revenue— then there’s a lot more room for this company to grow…”
Management said it’s “seizing the opportunity” being presented by COVID-19, going beyond selling handmade protective masks — the company reportedly brought in $346 million in GMS sales on masks since April — to grow what it calls its “Keep Commerce Human” approach to online shopping.
“Although it is early days, we are already seeing encouraging data points in customer retention, frequency, and growth in lifetime value that are a result of our product and marketing investments,” CEO Josh Silverman said in an August 5 press release.
Telfser says with more runway ahead for e-commerce in general, stocks like Etsy should keep climbing.
“It’s a very interesting name in this current environment, [with] some of these e-commerce channels being pulled forward and first-time users on some of these platforms getting engaged,” said Telfser, partner at Aventine, who spoke on BNN Bloomberg on Thursday.
“There was about $350-million worth of revenue that Etsy realized through 110,000 different sellers on their for masks. It’s things like this that are really driving people to platforms like Etsy, so we think we think that it’s probably one of these companies that’s going to be here to stay,” Telfser said. “And if you do believe that their addressable market is quite large —we’re talking hundreds of billions of retail revenue— then there’s a lot more room for this company to grow.”
Telfser did flag ETSY as currently trading at a large multiple of sales, putting it in the growth investment category.
“If you’re into growth stock investing this might be an interesting time, even with this run-up, to look at a name like Etsy,” he said. “We would caution that you’re going to be lacking some big quarters where they’re not going to sell $350 million worth of masks, but it’s a company that’s really well positioned in this sort of environment where people like to do things at home, they need to make some extra revenue and people aren’t going into stores.”
According to TipRanks, Etsy is one of the stocks getting the most love on Wall Street right now. Harriet Lefton, writing for CNBC, says all analysts they follow like the stock and one highly regarded analyst just doubled down on it.
Online crafts marketplace Etsy scores a unanimously bullish sentiment from top analysts right now,” Lefton noted. And one best-performing analyst who has just reiterated his Etsy buy rating is Oppenheimer’s Jason Helfstein. On October 7, he boosted his stock price forecast from $150 to $160. Helfstein cites encouraging third-party traffic data as a sign that management is successfully executing on its strategy of educating buyers to Etsy’s broad product selection and driving better repeat behavior.”
Etsy was one company which recently banned items from conspiracy group QAnon, which sold t-shirts, masks and bumper stickers that echo its belief that Donald Trump is the subject of a deep state conspiracy from a group of sex traffickers intent on creating a “New World Order”. Etsy management said the group’s items violated a policy in which it would not “promote hate, incite violence, or promote or endorse harmful misinformation”. Etsy joined Facebook and the latter’s wholly-owned subsidiary Instagram in banning QAnon.
“Etsy is firmly committed to the safety of our marketplace and fostering an inclusive environment. Our seller policies prohibit items that promote hate, incite violence, or promote or endorse harmful misinformation. In accordance with these policies, we are removing items related to ‘QAnon’ from our marketplace,” an Etsy spokesperson told Business Insider.
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