Etsy (NASDAQ:ETSY) is a niche e-commerce website specializing in handmade and vintage goods. ETSY stock launched its initial public offering (IPO) back in 2015, initiating around $25 per share.
ETSY was initially a bust, with shares sliding into the single digits. But the company turned things around starting in 2018.
Now the stay-at-home economy has lifted Etsy into the big leagues. Shares are up as much as fourfold over the past year as the quarantine has given Etsy a perfect opportunity to become a household name. But will the comeback continue?
A Perfect Stay-At-Home Stock
Etsy is benefiting from the confluence of two powerful related trends. The first helps the vendor side of the equation.
Simply put, with unemployment soaring, millions of Americans are trying to augment their incomes. Etsy offers a fine way for people to turn their hobbies into a side hustle. That’s good at any time, and particularly useful in this uncertain economic climate.
It’s always good for Etsy to have more unique product creators on their site. However, the pandemic catalyzed both sides of the marketplace. Now Etsy has more customers as well. That’s because millions of Americans are sheltering in place and shopping for goods online, rather than driving to the mall or big box store.
In some ways, Etsy is like an online mall, though the more apt comparison might be a digital crafts fair. Etsy offers unique fashion accessories, organic fragrances and a broad array of other handmade and vintage items. Creators can quickly list new products; we’ve seen how that can turn into big revenue this year, as Etsy now has a burgeoning face mask market.
Etsy’s Weakness Has Become A Strength
At the company’s inception, many investors believed its focus was too narrow to be hugely successful. Remember that ETSY stock originally flopped out of the gate. By mid-2017, Etsy’s year-over-year revenue growth slowed to just 18% and it appeared the company might never reach critical mass.
The company redoubled its efforts, however. In particular, it focused on improving its search functions.
It turns out that Etsy indeed had fantastic products; it simply had struggled to help them reach visibility with customers. As Etsy improved its capabilities there, the overall financial picture brightened.
By late 2018, the company got its revenue growth rate up to 40% annually and started reporting strong quarterly profits.
Etsy never wavered from its commitment to niche handmade and small-batch goods. And now, that “narrow” focus looks like genius. Etsy possesses a cachet in the marketplace that large-scale online vendors like eBay (NASDAQ:EBAY) and Amazon (NASDAQ:AMZN) lack. Nearly 90% of Etsy customers surveyed agreed that Etsy has items you simply can’t find anywhere else.
By contrast, Amazon, for example, has been dogged by complaints about low-quality merchandise coming in from overseas. You won’t have that problem if you buy on Etsy.
Keeping Commerce Human
Etsy describes its mission as “Keeping commerce human.” There’s a clear appeal there, as folks feel increasingly threatened by technological change and automation. There’s something reassuring about hand-produced art and home goods.
The stay-at-home trend has only accelerated this. Etsy is seeing a surge of both sellers and buyers on its platform. Given the economic troubles, many people want to support artisans rather than faceless big businesses. And many previously full-time employees now have the downtime to try their hand at a side business.
In the first quarter, Etsy saw active sellers grow 26.4% year-over-year. Etsy has been a lifesaver for folks who are now unemployed.
Traders may look at stay-at-home stocks and think that share prices will go back down as the pandemic ends. Don’t count on that happening with Etsy though. Congress recently let the enhanced unemployment benefits program lapse. As government support tapers off, it highlights the role that Etsy can play as a bridge for folks currently between jobs.
ETSY Stock Verdict
Rarely do you find a company whose mission is so closely aligned with the current zeitgeist. Etsy is riding all sorts of trends. People are spending tons of money on furniture and home improvement as they cocoon at home.
Etsy has just the right niche good for many situations. And given the virus concerns, few people are going to flea markets or garage sales right now. If you want to find something striking, unique and unexpected, Etsy is the place.
Meanwhile, there’s never been more talent on Etsy’s site creating inspired new designs. As Etsy Chief Executive Officer Josh Silverman explained recently: “For our sellers maybe other forms of unemployment are under stress. The opportunity to earn a living selling on Etsy is really powerful right now.”
Although Etsy stock has been on a tear, I believe it still has plenty of upside over a two- or three-year time frame. The company has only captured 5% of an estimated $150 billion total addressable market. So the company could triple revenues and still take up only 15% of the overall market.
In other words, for as great as 2020 has been, Etsy could have even bigger years ahead. The past few months have validated Etsy’s business model and made it a core part of many peoples’ lives. Investors will enjoy the benefits of that long after the pandemic has ended.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.