Propelled by a tailwind of coronavirus mask sales, Etsy (NASDAQ:ETSY) has never been more popular. Its online marketplace for handcrafted goods is attracting more buyers and artisan sellers as the pandemic keeps many families at home for school, work, and just about everything else. But with the stock trading at all-time highs, is it still a good time to buy?

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The business

Etsy has built an online marketplace focused on offering unique handcrafted or vintage items that people can't buy anywhere else. It now has 3.1 million active artisan sellers, and 60 million active buyers who have made at least one purchase in the past 12 months. Masks may have brought many new customers to the site, but they're not just buying masks -- transactions have accelerated across the board.

More than 110,000 sellers have sold at least one coronavirus mask, pulling in $346 million in gross merchandise sales (GMS) since April. Non-mask sales grew 93% year over year in Q2 2020, driven by sales in three categories where growth exceeded 100% year over year: homewares and home furnishings; craft supplies; and beauty and personal care. Its top six categories accounted for 75% of sales on the platform.

Revenues for the quarter were up 137% to $429 million on GMS of $2.7 billion. Net income rose 429% year over year to a record $96 million. And the company is not resting on its laurels.

Man with overalls and safety glasses in his workshop using his phone to take a picture of his work.

Image source: Getty images.

An ever-improving platform

As a marketplace with millions of items that don't carry barcodes, the company is focused on improving its search and discovery process to create a better shopping experience. To this end, it recently implemented saved searches, favorites, and customer lists. Tools like these are also helping it improve its search engine -- as shoppers provide more insights into their preferences, Etsy's algorithms can create results that will be more likely to include items they'll be interested in. 

Other recent platform improvements include video capabilities that sellers can use to better present their items, and an augmented reality tool that allows customers to see how any of the 5 million items on offer in Etsy's "paintings, photography, and prints" category would look in their homes before they hit the buy button. 

Free shipping for carts valued over $35 has been a part of Etsy's process for almost a year, but in its most recent quarter, it added a feature to help buyers meet the free shipping requirement. If the cost of the items in your cart doesn't yet exceed the $35 mark, the interface will suggest other items from your seller that could help you reach the minimum level. CEO Josh Silverman stated that the feature provided "some meaningful uplift" for the quarter, and that he was encouraged by the initial results.

The platform's incredible growth allowed it to boost its product development spending by 56% year over year to $45 million last quarter. Even with the additional costs, this spending dropped to 10% of overall revenue, down from 16% in Q2 2019. Look for the company to continue to invest heavily in its platform and provide features for its community of buyers and sellers to get more value from the experience.

Tailwinds of the stay-at-home trend and more

The pandemic has certainly enhanced Etsy's short-term results, but it is likely that some tailwinds will prove long-lasting, too. For the tens of millions of us who will keep spending far more of our time at home for the foreseeable future, making those homes more livable and functional is likely to remain a priority. Etsy's sellers offer many handcrafted items for the house, from desks and decorations to everyday supplies such as hand sanitizer. That suggests there's a tremendous opportunity for it to grow sales in its homewares category from their $2 billion annual level  -- especially given that many of the platform's sellers are able to personalize items to suit buyers' tastes. 

COVID-19 has dealt a severe blow to local brick-and-mortar retailers, but it's providing an opportunity for Etsy. Even as non-essential businesses have been permitted to reopen, many shoppers still aren't venturing out much, and vast numbers of shops have gone bust and closed permanently. With fewer local small-business options to patronize, it's likely that people already pivoting more of their spending to e-commerce channels will start making a habit of using Etsy's marketplace.

Lastly, the platform captured a record 18.7 million new and reactivated buyers in Q2. There's tremendous opportunity to get these customers to come back again and again by giving them more reasons to visit Etsy for special items throughout the year.

So, is Etsy a buy today?

In April, I addressed this same question and concluded the stock was a buy. But since then, its price has rocketed up by more than 165%, and its reasonable price-to-sales ratio of 8 from six months ago has ballooned to a premium ratio of 14. That valuation prices the stock more like a software-as-a-service (SaaS) company than an online retailer. But in many ways, this asset-light business operates similarly to a SaaS company with its high gross margins (74%) and its ability to invest heavily in its platform.

Further, Etsy has something that many high-growth companies don't -- a profitable business model. It boasts a trailing-12-month operating margin of 16%, making this unique online marketplace a buy today even at its premium valuation.