Etsy Appears to be Built for Endurance

In the current competitive market, many internet businesses are striving to reinvent themselves. Etsy is no exception, as they are making changes to stay ahead of the curve. It appears that everything is perfect without any effort.

Etsy, once a small online marketplace for crafters, has seen a surge in popularity during the pandemic. This growth has been sustained, as evidenced by the fact that the number of active buyers at the end of the third quarter was only 2% lower than its peak at the end of 2020, and almost double the amount it had before the pandemic.

The stock market has responded positively to the growth of the company, with shares increasing by more than 40% in the last three years, despite the performance of competitors such as eBay and Shopify.

Many stocks have seen a decrease in value over the past few months, but Etsy has been an exception. Jefferies recently named it the top pick in e-commerce and midcap internet, calling it a "must-have for your holiday shopping list." MoffettNathanson also praised the company, describing it as "a near perfect example of what an internet marketplace should be."

In a conversation with D.A. Davidson in early November, Deb Wasser, Etsy's VP of investor relations, credited the company's success in the face of a difficult economic climate to the investments it has made in its sellers and the buyer awareness it has sought to create. What was not mentioned was the luck Etsy had in being a capital-light business with a distinct and agile model prior to the pandemic - a perfect example of being in the right place at the right time.

At a UBS conference this month, Etsy's CEO Josh Silverman humbly admitted that he did not have a definitive answer as to why his company has been doing so well. He went on to say that Etsy has managed to maintain its success during the pandemic more than they had anticipated. Silverman's best guess was that "people just really like the Etsy experience."

Despite the optimism of some, there are those who are not convinced that Etsy's success will last. After the company's third-quarter earnings report, Morgan Stanley commented that the growth outlook for Etsy had changed significantly from the past three years, and that the stock should now be valued at a lower multiple. Currently, Etsy is trading at a multiple of 23 times its enterprise value to forward earnings before interest, taxes, depreciation and amortization, which is much lower than the average of 30 times it was valued at over the last three years, with highs of 55 times in February 2021.

Etsy reported on its third-quarter conference call that it anticipates fourth-quarter gross merchandise sales to decrease by approximately 10% from the same period in the previous year, citing the "dynamic and somewhat unpredictable" market conditions.

It is likely that the guidance given is conservative and the company could continue to exceed expectations. Etsy reported that their business in October was even better than the third quarter on a pre-pandemic basis. Additionally, Adobe Analytics reported record digital sales for Thanksgiving Day, with mobile shopping driving the majority of sales for the remainder of Cyber week. A survey by BTIG also found that Etsy buyers anticipate spending 18% more on the marketplace this holiday season than last year.

Etsy has recently implemented ads, video, and personalization to its shopping experience. This platform is attractive to many sellers because it is an individual-based platform, unlike Shopify businesses. Despite increasing its transaction fee by 30%, Etsy has only lost 4% of its sellers, which shows the value that sellers find in the platform.

Despite the fact that shoppers have the option to go back to physical stores, buyers have not significantly decreased. Etsy stands out from other online retailers because it offers a more personal experience; many items come with a handwritten note. Additionally, the platform is current and up-to-date, as many consumers have only recently discovered it. Furthermore, Etsy is unique in that it allows users to shop directly from the site, unlike Pinterest.

Etsy is not only pleasing customers with its unique features, but it is also pleasing investors due to its differences from other online companies.