E-commerce companies like Etsy, Inc. (NASDAQ: ETSY) were a pandemic play, but what happens when the pandemic finally ends? Etsy might be a test case.

The retail marketplace for artisans made its stock market debut on April 16, 2015, with an initial public offering (IPO) of $16 per share. After initially nearly doubling in price, it entered a period of steady decline.

But when the pandemic hit in March 2022, Etsy lifted off. It reached a high of $294 in late 2021 before reversing again. By the end of May 2022, it was back at about $82 a share.

In 2022, analysts generally remain positive about Etsy but their price targets are all over the map. In January, Jeffries Financial rated it a buy but lowered its price objective to $280. Wedbush decreased its price target to $185 in February. Morgan Stanley reduced its price target to $113 in May.

Key Takeaways

  • Etsy is a peer-to-peer online platform where people can buy and sell handmade, bespoke, vintage, and unusual products.
  • The company went public in 2015 at $16 a share.
  • It soared throughout the COVID-19 pandemic and then fell back to Earth but still traded at about $82 a share in $82 a share in May 2022.
  • Etsy charges its sellers a 6.5% transaction fee.
  • It also makes money from listings and other seller services and earns revenue from payment processors used on the platform.

Company Overview

In an earnings report released on May 5, 2022, Etsy reported first-quarter revenue of 60 cents per share, a slight beat over the consensus estimate. Its active user base grew 4.9% from the previous quarter. Merchandise sales were down 2% from the quarter a year before, a fact attributed to “normalization” to pre-pandemic levels.

In fact, its first-quarter 2022 revenue growth of 5.2%, to $579 million, was the company’s first-ever single-digit increase.

For the second quarter of 2022, the company anticipated total revenues between $540 million and $590 million. That falls short of the Zacks consensus estimate of $636 million.

Etsy stock dropped nearly 17% on that disappointing forward guidance.

About Etsy

Etsy is a peer-to-peer (P2P) e-commerce website where users buy and sell handmade crafts, vintage items, art, and photography. It’s an online marketplace like Amazon and eBay, but Etsy’s emphasis is on the unique and handmade rather than mass-produced merchandise.

The site launched in 1998 and grew steadily in its first decade, making its one-millionth sale in 2007. One year later in 2008, Etsy received $27 million in venture capital funding.

The company announced its IPO in March 2015 and officially went public on April 16 of the same year. After a brief initial surge, the stock began declining, and by mid-June, it had fallen below the IPO price of $16 per share.

Analyst Matthew Frankel at The Motley Fool rated Etsy as “the worst IPO of 2015.” 

Etsy Challenges

Like eBay, Etsy has a great advantage in its ability to keep its hands off the merchandise, letting its independent sellers handle most of the burdens of storing inventory, shipping, and customer service.

That leaves Etsy with the task of keeping its sellers happy while increasing the revenues it earns from them. That hasn’t been going well lately. An effective 30% increase in transaction fees imposed in April 2022 led to a seller’s strike.

Competition from Amazon

Etsy may face some stiff competition eventually from Amazon (AMZN), which introduced its Amazon Handmade in 2015. But it doesn’t appear to be a huge threat yet. An announcement from Amazon in 2020 indicated that its Handmade sales in the U.S. had surpassed $1 million a year.

(Not that Amazon is running scared from Etsy. Company-wide Amazon revenue that year totaled about $386 billion.)

How a Day 3 Investment Would Have Fared

One way to determine if you should have invested in a company early is to put yourself in the shoes of an investor who got in shortly after an IPO. On April 20, 2015, Etsy’s third day of trading, the stock opened at $28.77 and closed at $24.90.

Let’s say you invested in 100 shares of Etsy toward the end of day three when shares were trading at $24.90. Those shares would have cost you $2,490 at the time — and over the next nine months, you would have watched and winced as the value of those shares steadily declined.

On January 19, 2016, Etsy shares closed at a record low of just $6.65. At that time, your investment would have dropped 73.29% in value from $2,490 to $665. If you held onto that stock, however, you would have watched it slowly creep up in value over the next two years. The stock would exceed its March 2015 IPO price of $16 on Aug. 11, 2017, when the company closed at $16.22, and would double that less than a year later with a share price of $32.34 on May 31, 2018.

You really would have cashed in if you held onto Etsy stock through the worst of the COVID-19 pandemic. On Nov. 19, 2021, the stock hit its high of $294.38.

Etsy Stock Price Today

That November high was the start of another long slide for Etsy. By June 3, 2022, it closed at $80.98 a share.

That’s still a respectable profit of about 2.8 times its $28.77 day three price.

What Is Special About Etsy?

Etsy is not “the store for everything” that Amazon is. It’s focus is on handmade and bespoke products made by artisans and artists, with a strong sideline in antiques and collectibles. In 2022, its advertising zeroed in on its furniture selection, a tough sell given the high shipping costs for such large items.

Who Owns Etsy Stock?

The top 10 owners of Etsy stock are mutual fund and investing companies, led by The Vanguard Group, Inc., Wellington Management Co. LLP, and BlackRock Fund Advisors. Only 0.74% of the stock is owned by company insiders.

Who Founded Etsy?

Etsy was founded in 2005 in Brooklyn, New York, by entrepreneur Rob Kalin and partners Chris Maguire and Haim Schoppik. It marked its one-millionth sale on July 29, 2007. Maguire and Schoppik left the company in 2008.

The Bottom Line

The COVID-19 pandemic was very very good for Etsy. It has now entered its post-pandemic phase. Its stock price has fallen to Earth from its 2021 highs but is still at a respectable level above its IPO price.

Leave a Reply

Your email address will not be published. Required fields are marked *

Check Also