Ahead of its earnings report scheduled for May 8, Etsy (NASDAQ: ETSY) stock has been range-bound for the last month. But Etsy stock is not too far from its 52-week high of just over $73 Investors looking for an entry point into Etdy Inc stock will want to wait for the company’s Q1 report.
Strong Five-Year Financial Targets
ETSY is confident in the company’s long-term outlook. I believe that its product improvements and investments will lead to growth over the next five years. Annual gross merchandise sales (GMS) growth is expected to be in the range of 16%-20% during that time, with revenue growing at a rate above that of GMS. Since ETSY will utilize a disciplined spending approach, it expects its adjusted EBITDA to expand by 30% or higher in each of the next five years.
Etsy forecasts that its marketing expenses, as a percentage of revenue, will fall sequentially in Q1. Investors likely expect its adjusted EBITDA to rise as a result of its cost controls. ETSY’s margins typically peak in Q4 due to seasonality, so investors should expect them to be flat or fall versus Q4. Etsy’s willingness to test unproven marketing channels will lead to higher costs in the back half of 2019.
ETSY started investing in TV ads in the second half of last year. It will apply what it learned from the exercise this year.The company is moving data to the cloud this year, a project that is expected to cost $25 million. It did not specify when it will book these costs.
Positive Momentum From Q4
Etsy’s Q4 benefited from holiday-related GMS, which grew 30% year-over-year. . And its GMS of $19,000 per minute on Cyber Monday could give the company positive selling volume momentum in Q1. In all likelihood, the company’s 2019 results will exceed analysts’ consensus expectations.
Opportunity for Growth
Etsy has two types of customers it it is driving onto its site: new buyers and existing ones. The company is in the early innings of figuring out the best marketing approaches. Management will know its marketing ideas are working if its customer acquisition rate grows.
Etsy’s existing social media channels will keep bringing in new customers. Users sharing Etsy-related goods on Twitter, Facebook, and Instagram will drive further traffic directly to the site.
The Bottom Line on Etsy Stock
13 analysts covering Etsy stock have an average price target of $72.64 on Etsy stock, according to Tipranks. The implied gain of Etsy stock is small, but many analysts could raise their price targets if Etsy beats expectations by a wide margin.
Investors who prefer to run number-crunching models may use revenue growth assumptions to arrive at the fair value of Etsy stock. The company’s historically strong revenue growth will give investors the confidence that Etsy will continue to grow quickly for the next few years.
As of this writing, the author did not hold a position in any of the aforementioned securities.