ETSY with Nobias technology: Down 29% From All-Time Highs, Is Etsy A Buy?
Etsy (ETSY) has been one of the best stocks to own over the last 5 years. After a shaky post-IPO period (Etsy IPOed in 2015), the stock has posted total returns of more than 1,758% during the trailing 5-year period. The company was a big winner during the 2020 COVID-19 pandemic period, due to the unique nature of the stay-at-home economy that developed (specifically related to an increase in online shopping and the ongoing development of the side-hustle/gig economy). However, during 2021, Etsy underperformed the markets. The S&P 500 was up approximately 27% last year; however, Etsy shares were only up 23.06%. This underperformance is due to Etsy’s Q4 sell-off. After hitting 52-week highs of $307.75 in late November, Etsy shares sold off precipitously throughout the month of December, falling nearly 29% from the highs. So, with this strong double digit sell-off in mind, we wanted to take a look at what the credible analysts that are tracked and rated by the Nobias algorithm have had to say about the stock recently and see if this is a dip worth buying.
Nobias 5-star rated analyst, Shrilekha Pethe, recently explored Etsy’s competition position in a report which was focused on the health of the eCommerce industry as we head into 2022 and came to the conclusion that Etsy’s recent sell-off represents a relatively attractive buying opportunity. First of all, Pethe highlighted Etsy’s recent Q3 results writing, “When it comes to revenues, Etsy posted revenues of $532.4 million in Q3, an increase of 17.9% year-over-year. However, diluted earnings came in at $0.62 per share versus $0.70 per share in the same period last year.”
This negative year-over-year bottom-line growth has certainly factored into Etsy’s recent weakness; however, Pethe points out that Guggenheim analyst Oliver Hu recently said that Etsy is “one of the best positioned companies this holiday” and therefore, she believes that the Q3 disappointment may not last. Hu’s bullish opinion is based, in part, on data from website data analytics firm Apptopia which points towards Etsy app sessions being up 54% on a year-over-year basis during the early Q4 period. Hu also says that Etsy’s website and app performance is improving with a lower bounce rate, which presents the percentage of users who leave the website after visiting just one page.
ETSY Dec 2021
Furthermore, Pethe, says “the TipRanks Website Traffic data supports this view”, indicating that “total unique visitors on all devices to the company's website year-to-date are up 19.39% in comparison to the same period last year.” All in all, the holiday season analytics point towards a lucrative Q4 for Etsy.
Neil Patel, a Nobias 5-star rated author, also recently published a bullish article focused on Etsy titled, “Here's Why You Should Buy Etsy Stock and Hold for the Next Decade”. In this piece, Patel highlights the increasing benefits that Etsy is able to experience as its online scale continues to expand.
Patel wrote, “Over the first nine months of 2021, the company's net profit margin was a stellar 20.6%. Etsy has shown it benefits greatly from operating leverage. In other words, net income rises faster than sales thanks to a largely fixed cost structure. In 2015, the business wasn't even profitable (annual loss of $54 million), which shows you just how quickly management has been able to boost the bottom line.”
Patel notes that Etsy has recently seen its active buyers and sellers increase significantly. In a separate article which Patel published on December 11st, 2021, he wrote, “As of Sept. 30, Etsy had 96.0 million active buyers (up 37.8% year over year) and 7.5 million active sellers (up 102.7% year over year) on its platform.” And, he says, this increasing scale doesn’t only result in increased cash flows via sales (due to the company’s increasing take rate when it comes to the foods sold).
Patel wrote, “In addition to charging mandatory fees for listing, transaction, and payments services, Etsy offers ads and shipping features.” Lastly, he says that the “most important” thing that investors need to remember when it comes to Etsy is that this is a highly profitable, asset light business model. Patel said, “Because Etsy's marketplace simply connects buyers and sellers, it holds no inventory, freeing up capital that would otherwise be tied up. Over the past 12 months, the business produced $584.4 million of free cash flow on revenue of $2.2 billion.”
In recent quarters, Etsy has seen its market share of eCommerce sales fall. This has factored into its recent sell-off as investors and analysts alike wonder if the 2020 pandemic period will represent peak interest in Etsy from consumers. However, Patel believes that the secular growth trends that continue to push the entire eCommerce industry’s annual sales volumes higher will benefit Etsy as well. He wrote, “Although e-commerce's share of overall retail sales fell to 13% in the third quarter, down from nearly 16% during the height of the pandemic last year, the ongoing shift away from brick-and-mortar retail is undeniable.” This is clearly shown by the company’s continued sales growth.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Patel points out that “Management expects full-year 2021 revenue to jump 32.5%, an impressive gain when compared to the monster 111% growth registered in 2020.” Furthermore, Patel notes that Etsy has plans to capture international market share in the fast growing eCommerce space. He said, “Looking ahead, Etsy has a huge opportunity in markets outside the U.S. India, for example, can meaningfully expand the company's already massive $1.7 trillion addressable market. The South Asian nation was recently added as a core geography for Etsy (the others being the U.S., U.K., Canada, Germany, Australia, and France), a sign management views the country as extremely promising long term.” He concludes his bullish report saying, “Etsy is still a great business with the financial base and growth to help lift your portfolio. Use the recent market volatility to your advantage, and consider buying the stock at these levels. I plan on owning this business for a very long time.”
When looking at the data collected by the Nobias algorithm, it appears that the credible authors and credible Wall Street analysts alike, share Patel’s bullish outlook. 89% of the recent articles that we’ve tracked which have been published by credible authors focused on Etsy recently have expressed a “Bullish” opinion on shares. Looking at the 4 and 5-star rated analysts that we track, the average price target for ETSY shares is currently $278.22. Today, ETSY trades for $218.94. This means that the average price target provided by credible analysts represents upside potential of approximately 27%.
Disclosure: Nicholas Ward has no ETSY position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.