Is Etsy Stock a Buy?
As an online marketplace for unique and creative goods, Etsy (NASDAQ: ETSY) has been a darling among investors in recent years. With its stock price more than tripling since its IPO in 2015, many are wondering if Etsy is still a buy. In this article, we’ll dive into the company’s recent performance, financials, and prospects to help you make an informed decision.
Recent Performance
Etsy’s stock has been on a tear in recent years, with the company’s market capitalization increasing by over 300% since 2019. This surge in value can be attributed to the company’s strong financial performance, growing user base, and increasing revenue. Here are some key metrics that demonstrate Etsy’s recent success:
- Revenue: Etsy’s revenue has grown steadily, with a compound annual growth rate (CAGR) of 25% over the past five years. In 2020, the company generated $1.73 billion in revenue, a 20% increase from 2019.
- Gross Margin: Etsy’s gross margin has also improved significantly, from 64.1% in 2019 to 67.4% in 2020. This is due to the company’s focus on increasing its own fulfillment capabilities and reducing reliance on third-party logistics providers.
- Earnings: Etsy’s net income has also increased, with the company reporting a net income of $105.6 million in 2020, compared to a net loss of $65.8 million in 2019.
Financials
Etsy’s financials are strong, with the company reporting a net cash position of $443.4 million as of December 31, 2020. Here are some key financial metrics that demonstrate Etsy’s financial health:
| Metric | 2020 | 2019 | 2018 |
|---|---|---|---|
| Revenue | $1.73 billion | $1.44 billion | $722.8 million |
| Net Income | $105.6 million | $(65.8) million | $(48.8) million |
| Gross Margin | 67.4% | 64.1% | 62.4% |
| Operating Margin | 12.6% | 9.4% | 5.4% |
| Net Cash | $443.4 million | $314.5 million | $244.8 million |
Prospects
So, is Etsy stock a buy? The answer is yes, but with some caveats. Here are some key factors that investors should consider:
- Growing User Base: Etsy’s user base has been growing steadily, with the company reporting 48.7 million active buyers as of December 31, 2020. This growth is driven by the company’s increasing popularity among consumers, as well as its efforts to expand its reach through marketing and advertising.
- Increasing Revenue: Etsy’s revenue has been growing steadily, with the company reporting a 20% increase in 2020. This growth is driven by the company’s increasing popularity, as well as its efforts to expand its offerings and improve its fulfillment capabilities.
- Competitive Advantage: Etsy has a unique competitive advantage in the form of its platform, which is designed to connect buyers and sellers of unique and creative goods. This platform is difficult to replicate, making it a key driver of Etsy’s success.
- Valuation: Etsy’s valuation is reasonable, with the company trading at a price-to-earnings ratio (P/E) of around 50. This is slightly higher than the P/E ratio of the S&P 500, but still reasonable given Etsy’s strong financial performance and growing user base.
Risks
While Etsy is a strong company with a lot of potential, there are some risks that investors should be aware of:
- Competition: Etsy faces competition from other online marketplaces, such as Amazon and eBay. These companies have larger user bases and more resources, which could make it difficult for Etsy to compete.
- Regulatory Risks: Etsy faces regulatory risks, particularly in the areas of taxes and intellectual property. The company could be subject to increased scrutiny and regulation, which could impact its financial performance.
- Geopolitical Risks: Etsy faces geopolitical risks, particularly in the areas of trade and tariffs. The company could be impacted by changes in trade policies and tariffs, which could impact its financial performance.
Conclusion
In conclusion, Etsy stock is a buy, but with some caveats. The company has a strong financial performance, growing user base, and increasing revenue. However, it also faces competition, regulatory risks, and geopolitical risks. Investors should carefully consider these factors before making a decision. Here are some key takeaways:
- Etsy’s financial performance is strong, with growing revenue and increasing gross margin.
- The company’s user base is growing steadily, driven by its increasing popularity among consumers and its efforts to expand its reach.
- Etsy’s competitive advantage is its platform, which is designed to connect buyers and sellers of unique and creative goods.
- The company’s valuation is reasonable, with a P/E ratio of around 50.
- Investors should be aware of the risks facing Etsy, including competition, regulatory risks, and geopolitical risks.
Recommendation
Based on Etsy’s strong financial performance and growing user base, we recommend buying the stock. However, investors should be aware of the risks facing the company and carefully consider their investment decision. Here are some key metrics to watch:
- Revenue growth: Etsy’s revenue growth is key to its success. Investors should watch for continued growth in revenue, particularly in the areas of gross margin and operating income.
- User growth: Etsy’s user base is growing steadily, but investors should watch for continued growth in active buyers and sellers.
- Competition: Etsy faces competition from other online marketplaces, so investors should watch for changes in the competitive landscape.
By carefully considering these factors, investors can make an informed decision about whether Etsy stock is a buy.