Please ensure Javascript is enabled for purposes of website accessibility

Etsy Posts Its Seventh Straight Quarter of Accelerating Sales Growth

By Leo Sun – Updated Apr 14, 2019 at 3:34PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

But macro headwinds could reduce that momentum in 2019.

Shares of Etsy (ETSY 1.93%) recently surged after the online marketplace's fourth-quarter sales and earnings growth topped Wall Street's expectations. Etsy's revenue rose 47% annually to $200 million, clearing estimates by $5 million and marking of accelerating sales growth.

Etsy's adjusted EBITDA rose 48% annually to $51.4 million, and its adjusted EBITDA margin rose 10 basis points to 25.7%. Its net income fell 8% to $41 million, or $0.32 per share, but still beat expectations by $0.12.

An artisan creates handmade jewelry.

Image source: Getty Images.

Etsy's growth looks solid, but is the stock still worth buying after more than tripling over the past three months?

The key numbers

Etsy attributes its accelerating sales growth in 2018 to stronger GMS (gross merchandise sales) growth, higher transaction fees, and higher revenue from its Promoted Listings. It also saw an acceleration of its GMS per active buyer, along with a 22% jump in "habitual" buyers who spent $200 or more and made purchases on six or more days over the past 12 months.

Etsy's total active sellers rose 9% annually to 2.1 million in 2018, and its active buyers grew 18% to 39.4 million. Its total GMS rose 22% annually during the fourth quarter and 21% for the full year. As seen in the following chart, Etsy's GMS and revenue growth accelerated significantly in 2018, but it expects that growth to cool off slightly in fiscal 2019.

Metrics 

2017

2018

2019 Guidance

GMS

15%

21%

17%-20%

Revenue

21%

37%

29%-32%

YOY growth. Source: Etsy quarterly reports.

Etsy attributes that cautious outlook to global macro challenges like softer consumer spending. However, Etsy often sandbags its guidance -- its GMS and revenue growth in 2018 easily surpassed the guidance it offered during the third quarter.

Etsy also expects its adjusted EBITDA margin to hold steady at 23%-25% for the full year, compared to 23.1% in 2018. This indicates that Etsy should keep its costs under control, and that it probably won't face much meaningful competition this year.

Check out the latest earnings call transcript for Etsy.

Parcels in a tiny shopping cart on a laptop keyboard.

Image source: Getty Images.

Amazon (AMZN -0.12%) tried to challenge Etsy in recent years with Amazon Handmade, but Etsy held its ground with its first mover's advantage in handmade products, its streamlined platform which helps shoppers find niche items, and its use of per-listing fees (as opposed to Amazon's monthly fees). Unlike Amazon, Etsy lets sellers provide links to personal sites, build mailing lists, and deploy other promotional tools.

Etsy's cash and equivalents rose 16% to $367 million for the full year. However, it also recently entered a $200 million revolving credit facility, which boosted its long-term debt from zero at the end of 2017 to $276 million at the end of 2018.

CFO Rachel Glaser skirted questions about the cash being used for potential acquisitions during the conference call, and merely stated that it was "good corporate housekeeping" to accumulate more capital "at attractive rates."

High valuations and big buybacks

Analysts expect Etsy's earnings to rise 43% this year. That's a stellar growth rate, but the bears still argue that the stock is still too pricey at about 90 times this year's earnings.

Nonetheless, investors are clearly willing to pay a premium for Etsy's robust sales growth and wide competitive moat. Etsy is also willing to pay that premium for its own shares. It bought back about $135 million in shares throughout the year at an average price of $30.28 per share, which is roughly half its current price.

Is Etsy worth buying at these levels?

Etsy's business is still firing on all cylinders, and it doesn't face any meaningful near-term headwinds besides a potential slowdown in consumer spending. I wouldn't recommend owning Etsy as a core holding, since its high valuation makes it an easy target during a market downturn. Nonetheless, investors who want a riskier stock with big potential returns can consider nibbling at Etsy at these levels.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Etsy. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Etsy Stock Quote
Etsy
ETSY
$112.33 (1.93%) $2.13
Amazon Stock Quote
Amazon
AMZN
$120.95 (-0.12%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.