It’s time to explore a famed stay-at-home name. Here is the break down on $ETSY, otherwise known as Etsy.
Current Price: $185.49
52/Wk High: $251.86
52/Wk Low: $103.06
Market Cap: $23.5 Billion
3 Month Performance: 10.50%
Read below for the break down!
Etsy ($ETSY) is a major diversified retail company that offers customers creative and handcrafted products created by entrepreneurs globally. In short, Etsy’s platform connects entrepreneurs to their customers via a digital shopping platform.
Breaking down the company, Etsy operates under four separate marketplace brands, the first of which being Etsy, the core platform. While Etsy is the core platform, the company maintains three other brands; Reverb, elo7, and Depop.
Exploring Etsy’s brands, Reverb is a popular digital marketplace for the buying and selling of musical instruments. Furthermore, elo7 is the “Etsy of Brazil” according to leadership and provides an Etsy type solution for Brazil.
Rounding out brands under the Etsy umbrella, the company recently added Depop, an online fashion retail platform that is known for its popularity amongst gen z consumers.
Earlier this year, Etsy acquired the company for $1.625 billion with the belief that the company offers a significant market opportunity given sizable gen z exposure and a significant opportunity to expand the company’s total addressable market (TAM).
Leadership was upbeat about the acquisition.
“We love Depop's rapidly growing GMS and loyal and engaged customer base, excellent user engagement and unit economics, opportunities to expand value added seller services, clear path for geographic expansion, and highly scalable, 'capital light' operating model,” CFO Rachel Glaser said.
Exploring the company’s leadership team, Etsy is led by CEO Josh Silverman who has been with the company since 2017. Silverman boasts experience from the likes of American Express, eBay, Skype, shopping.com, and Evite.
The rest of the management team is made of leaders who boast experience from the likes of Yahoo, Disney, Leaf Group, PayPal, General Electric, and Viacom.
Digging into the numbers Etsy beat Q2 2021 expectations with an EPS of $0.68, better than the analyst’s EPS consensus estimate of $0.63. On a year-over-year basis, EPS declined by 9.33%.
On the revenue front, Etsy delivered 23% total revenue growth on a year-over-year basis, bringing total revenue to $529 million in Q2.
Breaking down revenue, Marketplace revenue totaled $395.463 million while Services revenue totaled $133.437 million, representing 19.1% and 38% expansion year-over-year.
Alongside revenue, gross merchandise sales (GMS) improved by a strong 13.1% year-over-year, bringing total GMS to a large $3.041 billion in Q2. Breaking down GMS, the metric expanded by 31% year-over-year when masks are excluded.
Shifting into profits, gross profit totaled $379.931 million representing a strong 19.7% improvement in gross profit year-over-year. For reference, Q2 2020 gross profit totaled 317.356 million.
On the income front, net income slightly improved to $98.254 million, representing 1.9% expansion in net income year-over-year. For reference, the Q2 2020 net income level totaled $96.425 million.
Rotating into Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), adjusted EBITDA (non-GAAP basis) declined by 7.4% year-over-year. Do note, EBITDA margin declined by 900 basis points to 26% from 35%.
Alongside EBITDA, free cash flow declined to $116 million from $220 million due to cash payment timing and “sizable” costs.
According to management the decline in EBITDA was a direct result of reinvestment in the company.
Rounding out financial metrics, operating expenses increased by 46.7% year-over-year, totaling $290.826 million in Q2. Do note, it is not uncommon to see significant increases in expenses among quickly growing companies such as Etsy.
Shifting into user metrics, active sellers on the platform increased by 66.7% year-over-year to 5.233 million sellers. On the flipside, active buyers increased by 50.1% year-over-year to a strong 90.490 million buyers.
Finally, gross merchandise sales per active buyer expanded by 22% to a strong $129 per active buyer. For reference, GMS per active buyer was just $105 in Q2 of 2020.
Looking to the future management is bullish, expecting Q3 GMS to land within a range of $2.9 billion to $3.0 billion, representing roughly 12.5% expansion year-over-year.
Furthermore, Q3 revenues are expected to total $500 million to $525 million while the adjusted EBITDA margin is expected to land around 25%.
Shifting into the balance sheet the numbers are solid.
Total Debt: $2.323 Billion
Total Liabilities: $2.760 Billion
Total Assets: $3.290 Billion
Cash & Short Term Inv: $2.485 Billion
On a valuation basis, Etsy does trade at a premium.
Price to Earnings: 51.65x
Forward Price to Earnings: 49.19x
Price to Sales: 10.79x
Price to Book: 42.67x
Price to Cash Flow: 50.81x
Management has been effective.
Return on Equity: 92.18%
Return on Assets: 19.25%
Return on Invested Capital: 22.27%
Given the numbers, the analysts are bullish with a mean price target of $217.93/share representing a 17.35% upside.
The high price target is $270.00/share, representing a 45.39% gain while the low price target is $163.00/share, representing a -12.23% downside.
The big money is quite involved with 85.26% of Etsy being owned by institutions. Top holders include The Vanguard Group, BlackRock Institutional Trust, and Wellington Management Company.
On a technical basis, Etsy could be presenting an opportunity. According to the six-month charts, the MACD is moving to the downside with significant momentum within a range of 1.88 down to -0.37.
The six-month charts are also indicating an RSI of 47.06 and CCI of -85.49, both of which are lower.
Exploring investor sentiment the bears believe that Etsy is a strict COVID play that garnered an unusual boost due to the stay-at-home trend.
Meanwhile, the bulls believe that Etsy is a promising e-commerce winner that will leverage its unique platform and recent acquisitions to expand exponentially.
In short, Etsy ($ETSY) is a promising eCommerce opportunity boasting an expanding user base, reliable management team, and improving financials coupled with a $1.7 trillion total addressable market and unique access to the gen z consumer.
EAT - SLEEP - PROFIT
Disclaimer: This is not direct financial advice, simply an opinion based on independent research.