I am bullish on Etsy (ETSY) after listening to its CEO, Josh Silverman, talk during Citi’s Virtual Global Technology Conference on September 14, 2021, and describe his plans to make Etsy the “other” marketplace online besides Amazon (AMZN).
I am even convinced this company is worth the high price multiples that one must pay now for the stock (P/E is 42 at the time of writing), and it will be worth even more in the future. I also like that now is a good entry point for this stock as it is down over 50% from its high late last year.
The way that Silverman tells it, online marketplaces will begin consolidating around Amazon soon, and there really will not be another (strictly online) place to go online to buy commodity goods.
In other words, if you want paper towels, a book, or dishwashing detergent, Amazon will be your go-to place. He wants to make Etsy the other place you go. The site you go for one-of-a-kind goods that cannot be purchased anywhere else online. The place that artisans and craftsmen go to sell their unique items. Or, to say it differently, the “anti-Amazon.”
I am bullish on this stock because I believe Silverman, his management team, and Etsy can accomplish this and create quite a bit of value for investors along the way.
The metric that Silverman believes is most important to Etsy to fulfill this vision is recognition. He needs to put Etsy on the tip of every person’s tongue so that when they want to buy a one-off (nearly) custom-made item, they go to Etsy.
He said that Etsy is one of the five top online buying destinations for physical goods, but less than one-half of people in recent focus groups, when surveyed, say Etsy is a place to go and buy material goods online. That seems like a huge opportunity to me. He then said that his marketing team rolled out television ads much earlier than they usually would in Germany, resulting in a 5% gain in recognition in one quarter. He said that is a model that Etsy will be rolling out in other countries as it moves to do business in that space.
The last thing I learned from Silverman on the conference call was that Etsy has so far only chosen to do business in seven countries. Also, it is in the top five of all online destinations to buy something online. I cannot wait to see what happens in twenty years when they do business in every country?
Etsy, to me, seems like Amazon did back in the 1990s when it was just beginning to change how people purchased commoditized goods. I am bullish on this stock because I believe Etsy will become the Amazon of artisanal, one-off goods and will create quite a bit of value for investors as it becomes that.
Recent Results
Etsy brought in revenues of $2.23 billion over the last twelve months with a net income of $480 million.
The company has reported third-quarter earnings of $0.62 per share, beating analyst estimates of $0.55 per share by $0.07. It has also reported $2.30 in earnings per share for the first three quarters of 2021, beating analyst estimates of $2.07 for the same period.
Etsy does not currently pay a dividend. I do not expect this to change as this is a growth stock in every sense of the word.
The company has a solid balance sheet. Etsy has a current ratio of over 2, so it has enough current assets on hand to pay its bills for over two years at its current burn rate. That current ratio also says that Etsy has lots of cash on hand to pay for television commercials to push the management team’s strategy to increase recognition.
When I calculated the stock’s intrinsic value by modeling discounted cash flows, I pegged it at $186.00.
Wall Street’s Take
Turning to Wall Street, Etsy has a Moderate Buy consensus rating, based on 11 Buys, two Holds, and one Sell assigned in the past three months. At $248.07, the average Etsy stock price prediction implies 75.6% upside potential.
Of the last 48 bloggers that have blogged about Etsy, 95% of them are bullish, while the sector average is approximately 71% are bullish on the consumer goods sector in the last three months.
Conclusion
Based on the intrinsic value of this stock, the Wall Street analyst’s estimates, blogger estimates covering Etsy, and management’s growth plan, I am bullish on this stock. I think that Etsy can become the other marketplace online besides Amazon, and this represents a huge opportunity to create value for investors.
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