Buy Cheaper E-Commerce Star Etsy Stock Before Q3 Earnings?

Benjamin Rains
·5-min read

Etsy ETSY shares have thoroughly outclimbed e-commerce peers Amazon AMZN, Shopify SHOP, and eBay EBAY in 2020, as consumers spend heavily on the digital arts and crafts fair-style platform during the coronavirus. The company is set to report its Q3 results after the closing bell on Wednesday, October 28, which means now might be time for investors to decide if they should consider buying Etsy stock.

Etsy’s Niche…

Etsy is an e-commerce marketplace that allows individuals and small businesses to sell everything from clothing and jewelry to art and home décor. The online retailer that was founded in 2005 and went public in 2015 also owns musical instrument marketplace Reverb.

The company’s two-sided online marketplaces have become even more popular during the pandemic, with more people shopping from home than ever before. And the Brooklyn-based company has carved out a solid space within the booming industry by selling items consumers might not find on Amazon and eBay. Plus, it has effectively built a loyal customer base by providing a more quaint and local business vibe.

It is vital to understand that Etsy grew long before the coronavirus. The firm’s annual revenue surged 36% in fiscal 2019 and 37% in FY18. The company’s Q1 FY20 sales climbed 35% for the period ended on March 31. Etsy then reported blowout, pandemic-driven Q2 results. Its adjusted EPS figure soared over 400% on roughly 140% stronger sales.

Etsy’s strong quarter was boosted by around $350 million worth of face mask sales, which accounted for 14% of its $ 2.69 billion in total gross merchandise sales. This appears to be a serious one-time boost that hopefully won’t be repeated. That said, consumers might continue to buy masks, as they could be required to wear them in stores, restaurants, and other public places for much longer.

More importantly, Etsy’s non-mask sales soared 93%, up from the 79% growth the firm saw in April. Meanwhile, Etsy’s actives sellers jumped 35%, with buyers up 41%. Overall, Etsy’s marketplace revenue climbed 146% last quarter, while its services division, which includes promotional ads, popped 110%.

 

 

 

 

 

 

 

 

 

 

 

 

What’s Next…

In the second quarter, e-commerce accounted for 16% of total U.S. retail sales, up from roughly 11% in the year-ago period. This was a big jump given the near perfect conditions for stay-at-home shopping. But it also highlights how much more room there is to grow in the e-commerce space, which is why Target TGT, Walmart WMT, and others have gone all in on digital and delivery.

Etsy’s ability to expand during these conditions helped its stock price soar 215% in 2020, against Shopify’s 160%, Amazon’s 74%, and eBay’s 48%. The stock is also up 12% in the last month and popped 1.4% during regular trading Monday to close at $139.73 per share, even as the broader market fell. This still gives the stock 9% more room to run before it hits its mid-October highs.

Investors theoretically shouldn’t be too focused on an actual stock price. Yet, it is nearly impossible to ignore that Etsy stock costs $140 per share and Shopify rests at $1,040, while AMZN closed Monday over $3,200. Plus, Etsy trades at 9.9X forward 12-month sales vs. SHOP’s 37.8X. This also comes in well below its own 12-month highs of 12.1X.

Zacks estimates call for Etsy’s adjusted Q3 earnings to soar 392% to $0.59 a share, on 112% higher revenue. Looking ahead to the final quarter of the year, its adjusted EPS figure is projected to surge 104% on 65% stronger sales.

Etsy’s total fiscal 2020 revenue is projected to climb over 85% from $818 million in FY19 to $1.52 billion, with its adjusted earnings projected to jump 172%.

Bottom Line

Etsy has experienced some mixed earnings revisions activity recently to help it hold a Zacks Rank #3 (Hold) heading into its Q3 release. The stock also grabs an “A” grade for Growth in our Style Scores system and a “B” for Momentum.

The company is projected to continue to expand its top and bottom lines in FY21 and it crushed our earnings estimate by 80% last quarter. Therefore, long-term investors might want to consider buying Etsy stock as a “cheaper” pure-play bet on e-commerce. But it’s perhaps best to wait and see how its results and guidance come in on Wednesday.

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