Etsy Crushes Again
Shares of Etsy, the “global marketplace for unique and creative goods,” were up as much as 10% in after-hours trading after another solid earnings report. The small-cap has killed the market over the last 12 months, up almost 200% vs. the S&P’s 1.2%.
Etsy’s one year price chart. Crazy growth.
I’ve had this stock on my radar for a while and, disappointingly, haven’t been able to pull the trigger yet. They are essentially the only e-commerce business that is Amazon proof, and I see a long run-rate ahead. Shares do look slightly overvalued at the moment, and I honestly hope the stock drops so I can scoop up shares at a better price point.
Here are the highlights from the report:
4th quarter revenue of $200 million, up 46.8% Y/Y
Active buyers up 18.2% Y/Y to almost 40 million on the platform
Operating expenses up 54%, mostly due to increased marketing and some stock-based compensation
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Why I like the core Business
What interests me about Etsy is their ability to thrive in an Amazon-dominated world. Instead of trying to compete directly with the big-bad-bully from Seattle, they operate a niche marketplace (crafts and personalized goods) that Amazon will have a tough time replicating.
I also like Etsy’s margins and the health of their balance sheet. Gross margin (which is my favorite profitability indicator for a young company) was 71.4% in the 4th quarter, up 390 bps. Their quick ratio (current assets divided by current liabilities) is over 6, meaning they can sufficiently pay any short-term debt or other obligations.
What I don’t like About Etsy
The only thing concerning me with Etsy is their current valuation. Their P/S ratio is over 13 and estimates for their forward P/E all sit in the high double-digits. I don’t mind a P/S in the teens if a high margin company is growing sales at a 60-70% clip like, say, MongoDB, but Etsy’s growth numbers are nowhere near that level.
I love the business, and think Etsy has a solid brand and good staying power. I’m just not interested in buying shares for the long-term at the current price level.
Disclosure: The author is not a financial adviser, and may have an interest in the companies discussed.