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Here's Why Etsy Stock Skyrocketed 69% in April

By Jon Quast - May 5, 2020 at 8:59AM

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Don't look now, but shares have more than doubled since March lows.

What happened

Shares of Etsy (ETSY 4.56%) rose 68.8% in April, according to data provided by S&P Global Market Intelligence. After a big drop in March, shareholders can thank a broad market recovery for contributing to April's gain. For its part, Etsy kicked off the month with a fireside-chat business update, communicating a less dire situation than Wall Street initially feared. 

Etsy's stock price recovery is so profound that it has more than doubled from March lows and is now flirting with all-time highs.

Men in suits get carried away by rising arrows.

Image source: Getty Images.

So what

The COVID-19 pandemic boosted retail demand for consumer staples, things Etsy isn't known for. Specializing in handmade gifts, home decorations, and vintage items, Etsy took a coronavirus hit, with the stock dropping 34% in March as a result.

This concern was validated in Etsy's fireside chat. Gross merchandise sales (GMS) grew 41% year over year in January and February. But GMS fell 2% in the third week in March. So investors were right to question short-term consumer demand for Etsy's products.

However, investors were also being shortsighted. By the fourth week in March, Etsy's GMS was up 27%, lower than earlier in 2020, but still robust growth. CEO Josh Silverman said sales have been volatile day to day since the coronavirus crisis, but overall the company grew GMS 32% in the first quarter of 2020.

The fireside chat took place on April 2 and amply fueled the stock's outsize performance throughout the month.

Now what

Etsy gave some light guidance based on COVID-19. The third week in March was the worst week in 2020, but if sales were that bad every week throughout the year, it could still break even on an adjusted EBITDA basis. Considering that the company has $800 million on the balance sheet, $200 million untapped on its credit line, and no debt maturities until 2023, it's not likely to have any problems surviving the pandemic.  

That said, investors still don't know how Etsy's business performed in April. That question will likely get answered in its upcoming Q1 earnings call. The company is scheduled to hold the call after markets close on Wednesday, May 6. 

Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Etsy. The Motley Fool has a disclosure policy.

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