Etsy Inc (NASDAQ:ETSY), the e-commerce marketplace for one-of-a-kind products, did not get a lot of love from investors when it went public in April 2015.
In fact, many investors brushed off the company as a flea market that peddled homemade crafts that nobody wanted. And really, who on Wall Street wants to invest in a company that sells crocheted hats and mittens?
Investors have since found out that the numbers don’t lie, and there are a lot of reasons to love Etsy.
Since bottoming in early 2016, Etsy’s share price has been on a tear. In 2017, the company’s share price increased by 70.8%.
Thanks to a series of great earnings reports, Etsy’s share price soared a whopping 133% in 2018. In the third quarter of that year, Etsy reported high revenue growth and raised its full-year guidance.
For these reasons, an Etsy Inc stock forecast for 2019 of $75.00 represents a roughly 45% increase from its current price of roughly $52.10.
Etsy is the modern-day version of the 19th-century mission style of art and furniture that rejected mass-produced products.
Instead of selling everyday items you can find in any store, on any street, or any web site, Etsy is an e-commerce marketplace that offers unique, handcrafted goods and vintage treasures from creative entrepreneurs all around the world.
On the Brooklyn-based company’s web site, you can find roughly 50 million items in approximately 50 different retail (NYSEARCA:XLY) categories (including “Jewellery & Accessories,” “Clothing & Shoes,” “Home & Living,” “Wedding & Party,” “Toys & Entertainment,” “Art & Collectibles,” and “Vintage”).
The one-stop shop also offers various seller services, including Etsy payments, promoted listings, on-site advertising services, shipping labels, and Web design services. The company also provides seller tools and educational resources.
Etsy currently has a market cap of almost $6.3 billion, a forward price/earnings ratio of almost 73.2, cash and equivalents of $584.1 million, and long-term debt totaling $279.8 million. (Source: “Etsy Inc.,” MarketWatch, last accessed January 14, 2019.)
Etsy Inc Financials
On November 6, 2018, Etsy announced its financial results for its third quarter. Total revenue was up 41.3% year-over-year, at $150.37 million—from $106.4 million in 2017. (Source: “Etsy, Inc. Reports Third Quarter 2018 Financial Results,” Etsy Inc, November 6, 2018.)
Third-quarter gross merchandising sales (GMS) came in at $922.5 million, a 20.4% increase over the $766.3 million recorded in the same prior-year period.
Gross profit for the third quarter was up 47.7% year-over-year, at $103.4 million, while gross margin was 68.8%—up 300 basis points from 65.8% in the third quarter of 2017.
Third-quarter net income was $19.9 million, or $0.15 per share. In the third quarter of 2017, Etsy reported net income of $25.8 million, or $0.21 per share.
Net cash from operating activities was $97.1 million for the nine months ended September 30, 2018, versus $32.3 million in the prior year. The increase in net cash was mainly driven by revenue growth.
At the end of the third quarter, Etsy had cash, cash equivalents, and short-term investments of $584.1 million.
“Etsy’s growth accelerated again in Q3, on a currency neutral basis, and we achieved several key milestones,” said Josh Silverman, CEO.
“Third quarter GMS and revenue increased 20.4% and 41.3% respectively from the prior year, as our financial results demonstrate continued operational execution and business momentum,” said Rachel Glaser, CFO. (Source: Ibid.)
To that end, Etsy raised its full-year 2018 guidance for GMS and revenue. Full-year GMS growth is now forecast to be in a range of $3.87 billion to $3.9 billion, up from August’s guidance of $3.84 billion to $3.9 billion. This translates into year-over-year GMS growth of 19% to 20%.
Full-year revenue growth is projected to be in a range of $596.0 million to $600.0 million, up from previous guidance of $587.0 million to $596.0 million. This represents year-over-year revenue growth of 22% to 23%.
Etsy also announced a $200.0-million stock repurchase program. As of September 30, 2018, Etsy had cash and cash equivalents of approximately $362.7 million. Etsy has roughly 120.5 million shares of common stock outstanding.
Etsy Inc Stock Analysis for 2018
Strong back-to-back-to-back financial results helped propel Etsy stock significantly higher throughout 2018. The company entered 2018 trading at $20.50 and closed out the year trading at $47.57, for a 12-month gain of 132%.
To put that into perspective, the Nasdaq ended 2018 4.3% in the red, the S&P 500(NYSEARCA:SPY) lost 6.5% of its value, and the tried-and-true Dow Jones Industrial Average was down 5.9%.
The broader markets swooned during the October 2018 sell-off, but it was a short-lived affair for Etsy. The company’s share price rebounded and, in early December, it hit a record high of $58.30.
Etsy’s share price pulled back a little over the last few days of December, but it’s been bullish in January 2019. As of this writing, Etsy’s share price is up roughly 13.5%. Over the same time frame, the S&P 500 is up about 4.5% and the Nasdaq has advanced approximately 6.8%.
Chart courtesy of StockCharts.com
Why Etsy Could Hit $75 in 2019
Etsy stock has been bullish, and all of the indicators point to additional growth for the company in 2019. Etsy entered the year with great momentum, after posting three quarters of double-digit GMS and earnings growth.
- Q1 GMS up 19.8%; revenue increased 24.8%
- Q2 GMS climbed 20.4%; revenue advanced 30.2%
- Q3 GMS improved 20.4%; revenue up 41.3%
Keep in mind, Etsy’s growth hinges on consumer discretionary spending and broader economic indicators. Both are in the company’s favor right now.
December jobs data was solid, with 312,000 nonfarm payroll jobs added to the U.S. economy. Analysts had forecast the number to come in at 176,000. On top of that, wages were up 3.2% from a year ago. (Source: “Hiring surged in December, employers added 312,000 jobs,” CNN, January 4, 2019.)
The markets sank in December when the Federal Reserve raised its key lending rate for the fourth time in 2018. Since then, the head of the Federal Reserve hinted that it will slow down its rate hikes in 2019.
This has been good for stocks in the first few weeks of 2019. Etsy has been an early benefactor of the economic situation, which should help Etsy stock continue on its bullish trajectory.
Etsy has come off two strong years, with its share price advancing 71% in 2017 and roughly 133% in 2018.
Thanks to a skilled management team that introduced new initiatives in 2017 (cutting costs, cutting staff, improving its web site, etc.), Etsy’s GMS and revenue has improved. And, as expected, its share price has been on the move.
If Etsy follows the same strategy it did in 2018, and if the U.S. economy remains healthy, Etsy should be able to reward investors with another year of big gains.