Etsy (NASDAQ:ETSY) sells vintage and handmade things online. The company’s specialty offers proved popular with clients during the pandemic when individuals were locked at home and needed inspiration. The stock price soared over 800%, from $31 to $828 in November 2021.
Shares bubbles and rising inflation have destroyed the company’s stock since December 2021. The stock has fallen by 75% since then, although it has risen since mid-June due to solid second-quarter earnings. Given its outstanding prospects and lower price, is this stock a buy?
More Specialized Than Amazon
Etsy aims to be the starting point of e-commerce trips. Amazon (NASDAQ:AMZN), which sells cheap everything, isn’t a competitor. Etsy visitors buy unique things in Home and Living, Jewelry, Clothing, and more categories.
The company’s sophisticated search engine searches 100 million unique goods based on your prior behavior and the phrases you type. The company’s technology includes superior machine learning algorithms to help users.
The startup is experimenting with TikTok-style news feeds, video reviews, and live streaming events. The company constantly innovates and now highlights saved products on sale, enhancing conversions.
The company offers “buy now pay later” with Klarna and a purchase protection scheme for customers.
Advertising has grown 516% in five years, and seller ad expenses are up 80% year-to-date.
Etsy has acquired several businesses. These include Elo7, Brazil’s Etsy, and the $1.6 billion acquisition of Depop in 2021. Before this, the company bought Reverb, a new and secondhand musical instrument marketplace.
These acquisitions expand the company’s two-sided market. More sellers, customers, revenue, etc., benefit from these platforms.
Posted a Better-Than-Expected Q2
Etsy beat second-quarter 2022 expectations. $585 million in revenue surpassed analyst projections by $28 million, a 10% year-over-year rise. This was fueled by Home and Living’s 30% year-over-year and 170% three-year increase.
Gross merchandise sales were $3 billion, down 0.4% year-over-year but up 177% over three years.
Adjusted EBITDA climbed 17% year-over-year to $163 million with a 28% adjusted margin. EPS was $0.94, $0.24 higher than expected.
The company invests 17% of its revenue in product development, more than in 2021 (12%). Etsy has merged product development from Depop and Elo7, which should increase efficiency.
The company’s marketing spend was 28% of revenue in the second quarter. This was lower than the previous quarter’s 30% of revenue.
The company has $1.1 billion in cash and a capital-light business model. Despite being a young growth company, the company has $2.3 billion in long-term debt.
Etsy Stock Is Cheap
Etsy’s forecast price-sales ratio is 5.55, 42% below its five-year average. The company’s price-earnings ratio of 28 may not appear cheap, but it’s 46% cheaper than its five-year average. The company invests much in product development. Future growth could boost price multiples.
The company is a unique e-commerce enterprise. Recent earnings are better than predicted despite slower growth since the outbreak. Based on past valuation levels, the company could be a value opportunity. The current market situation may make Etsy volatile in the short run.
Featured Image: Megapixl © Mohammedsoliman4
