Stop Thinking of Etsy as a Pandemic Darling

Several companies had their best days during the pandemic and it gave rise to the pandemic darlings — companies that made their maximum revenue during the height of the pandemic and have since slowed down since the pandemic has eased. As we try to return to normalcy, many companies are struggling to keep their feet in the water. Etsy (NYSE:ETSY) is an e-commerce company that made the most of the pandemic situation. As we spent more time indoors, there was a lot of online shopping and Etsy was offering just what we needed. ETSY stock enjoyed the attention and went as high as $300 in November 2021. However, it didn’t stay there for long.

etsy logo on a grey wall
Source: quietbits /

ETSY stock started the downward journey in early December and has been declining consistently. It went from $246 to $148 today.

I believe Etsy is here to stay and we should stop thinking about it as a pandemic darling. There is a lot more to the company. Its growth potential is massive because the effects of a pandemic may wane but e-commerce is here to stay. Here’s why I think you should invest in ETSY stock.

The Fundamentals Are Solid

ETSY reported fourth-quarter earnings earlier this month and reported an earnings per share (EPS) of $3.4 and revenue of $2.3 billion for 2021. That’s a 35% year-over-year revenue (YoY) growth. Further, the first-quarter guidance for 2022 came between $565 million and $590 million. It expects gross merchandise sales between $3.2 billion and $3.4 billion for the quarter. The management expects a higher gross merchandise sales (GMS) growth in the second half of the year as compared to the first half.

Interestingly, ETSY is not a platform that simply attracts users who eventually lose interest. But it has seen a large number of repeat buyers over the past year. With 100 million listings and 36.3 million repeat buyers, the company is scaling. The company has reported very strong performance in the final quarter of 2021 and this shows that its business is not limited to the pandemic. It is time we stop looking at ETSY stock as a pandemic darling and consider it as one with solid growth potential.

I believe that the company is in an early growth stage and there is ample potential to scale. It has recorded a very high number of buyers and merchants on the platform. This has transformed the niche e-commerce platform into a complete shopping destination across all categories. As long as the merchants are growing, they will continue to attract new users and the gross merchandise sales will see a rise. There could be a near-term dip in the GMS but the long-term outlook is positive.

Quite simply, Etsy does not depend on the pandemic and won’t need to going forward. It has consistently grown, even after a dip in the number of Covid-19 cases.

The Bottom Line on ETSY Stock

ETSY stock is trading at a discount currently and it will go higher in the coming months. The capital-light business model has enough cash and cash equivalents to spend on marketing, product development, and technology infrastructure.

Lee Horowitz, a Deutsche Bank (NYSE:DB) analyst has initiated coverage of the stock with a hold rating and a price target of $145. The analyst stated that he is bullish on the long-term secular trends that underlie the company’s business model and the GMS estimates are not capturing the reopening headwinds properly. Horowitz further adds that the natural churn dynamics of new users gained during the pandemic will weigh on the company’s revenue numbers and GMS for this year and the coming year.

I think ETSY stock will continue to perform in the long run because the pandemic will end someday (hopefully) but online shopping will not!

On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis.

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