What happened

Shares of online marketplace Etsy (NASDAQ:ETSY) surged 11.4% in the month of July, according to data from S&P Global Market Intelligence. Though the company itself didn't report much in the way of news, several Wall Street analysts wrote bullish notes on the niche e-commerce darling and raised their price targets.

Furthermore, as another wave of COVID-19 infections hit the southern and western U.S., investors became more enthusiastic about e-commerce stocks in general. Given that its sellers also make lots of customized face masks, Etsy benefited doubly.

Three custom-made facemasks on a white wood surface.

Etsy benefited from July's boom in online shopping for face masks. Image source: Getty Images.

So what

In July, the Department of Commerce released economic data from June that showed a bigger-than-expected surge in retail sales, especially for "non-store retailers" like Etsy. Retail sales jumped 7.5% quarter over quarter and a surprising 1.6% year over year when stripping out gas and auto sales.

Even better, the non-store retail sector saw sales jump a whopping 23.5% year over year. It's also possible that many consumers who were stuck at home receiving government stimulus money went on sites like Etsy and other e-commerce marketplaces to spruce up their residences.

One particular edge for Etsy may be its wide selection of face masks. A consumer survey conducted by analysts at Needham & Co. revealed that 45% of consumers planned to buy a face mask after June, with 40% having already purchased masks and 15% not buying masks at all.

While this could just be a temporary surge, consumers' mask-buying expeditions are perhaps leading them to discover Etsy's handmade ecosystem. That could benefit Etsy in the long run, as consumers may turn to it for other products even once the pandemic is over. 

Now what

Etsy releases its second-quarter earnings today, Aug. 5, and investors will get a glimpse of how much online buying really went on in the quarter ended June 30, 2020. Analysts are expecting $330 million in revenue, which would amount to a massive 82.2% growth rate over the prior year, as well as earnings per share of $0.48. As long as the trend toward e-commerce accelerates, Etsy's two-sided network should continue to benefit in 2020 and beyond.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.