Etsy, Inc.

ETSY Details

Etsy, Inc. (NASDAQ: ETSY) runs a two-sided internet marketplace that connects consumers and sellers worldwide. Etsy.com and Reverb.com are two of its online marketplaces. Its income is divided into two categories: 1) marketplace revenue, which refers to fees charged to sellers for listing their items on its platform, and 2) service revenue, which includes cash collected from optional services (on-site advertisement and shipping labels).

Latest News

• Share Repurchase: Etsy repurchased an aggregate of nearly USD 63 million, or 420,398 shares, of its common stock in Q1 FY22 at an average price of USD 149.86, which is very high compared to the current price of USD 76.06.

Q1 FY22 Results:

• Decent Topline Performance: The company's revenue in Q1 FY22 was USD 579.26 million, up 5.2% on a YoY basis, driven by 3.4% increase in marketplace revenue and 10.6% surge in service revenue.
• Decrease in Bottom Line: ETSY’s net income was USD 86.1 million in Q1 FY22, down 40.1% year over year from USD 143.7 million in Q1 FY21. Higher employee compensation-related expenditures, including increased personnel from the Depop and Elo7 acquisitions, contributed to the drop in net income.
• Strong Cash Position: Etsy had USD 1.0 billion in cash and cash equivalents and short- and long-term investments as of March 31, 2022. Moreover, the current ratio of the company is 2.68x in Q1 FY22, higher than the industry median of 1.92x, implies adequate liquidity position to cover its short-term obligations.

Key Risks

• Technology Risk: ETSY's business, financial performance, and development may be affected if it cannot keep up with technology advancements and expand and develop new services to meet the changing demands of sellers and customers.
• Competition Risks: ETSY is an e-commerce company that competes directly with established competitors such as Amazon, eBay, and Alibaba, which might jeopardise the company's commercial interests.

Q2 FY22 Outlook

(Source: From Company Financials of Q1 FY22)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

Source: REFINITIV, Analysis: Kalkine Group

Stock Recommendation

ETSY's stock price has fallen only 73.38% in the past six months and is currently leaning towards the lower side of its 52-week range of USD307.75 to USD 72.66. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 88.41.

Despite continued uncertainty and macroeconomic headwinds, Etsy continues to rise to the occasion to deliver solid results that showed maintaining most of the gains reported during the extremely strong year-ago period. Also, Etsy delivered better than anticipated first quarter 2022 consolidated adjusted EBITDA margin of 27.5% on solid revenue results in line with the management expectations.

Considering the financial guidance, increase in revenue, strong cash position, operational position, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the current price of USD 74.40 as of May 23, 2022, at 06:40 AM PDT.

1-year technical chart as of May 23, 2022, at 06:40 AM PDT. Source: REFINITIV. Analysis by Kalkine group

Technical Analysis Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.