3 Reasons Etsy's Earnings Should Excite Investors

Artisans have sold over $740 million worth of coronavirus masks since April on Etsy's (ETSY -0.86%) e-commerce marketplace. These handcrafted masks have attracted millions of new buyers to the unique platform and thrust the brand front-and-center for consumers avoiding brick-and-mortar stores.

As a result, the stock price had more than tripled this year, although it pulled back after the third-quarter earnings report was released on Oct. 28. Despite the pullback, this quarter's management update should have investors excited.

Let's look at three reasons why Etsy's earnings show promise.

The year-to-date stock chart for Etsy and S&P 500 runs through Nov. 3, 2020. ETSY data by YCharts

1. More buyers spending more

Not only is Etsy the place to buy unique handcrafted coronavirus face masks, its homewares, craft supplies, and beauty and personal care categories all had triple-digit year-over-year sales gains in the most recent quarter. It seems customers came for masks, but have stayed for the unique items on the platform that can't be found anywhere else.

Over the last five quarters, active buyers have increased a massive 55% to 69.6 million. Active buyers are those that have purchased something on the platform at least once in the previous 12 months. These consumers are also spending more. Gross merchandise sales (GMS) per active buyer, the amount an active buyer spent over the last 12 months, has increased sequentially every quarter for the last 10 quarters in a row. In the most recent quarter, GMS per active buyer grew 8.2% year over year to reach $110.

YOY= year-over-year. Data from Etsy earnings reports. Table by author.

Etsy is seeing even better trends in its loyal buyers. Repeat buyers, those that bought on two or more days over the past year, increased 70% year over year to hit 27 million. Habitual buyers, those that purchased on six or more days in the previous 12 months, grew an amazing 104% to reach 5 million. Additionally, 75% of purchases in the quarter were from customers that joined prior to 2020.

This trend of buyers graduating to repeat or even habitual status bodes well for the long-term growth of the platform. This audience of interested consumers may also be why the platform is attracting more sellers too.

Image source: Getty Images.

2. More sellers

A two-sided marketplace can't thrive without a collection of diverse and talented sellers, and Etsy has plenty of those. Active sellers, those that have had at least one sale in the past 12 months, have increased 43% in the most recent quarter to 3.6 million. This is a considerable acceleration from pre-COVID numbers of mid- to high-20% range.

YOY= year-over-year. Data from Etsy earnings reports. Table by author.

Today, these 3.6 million active sellers have an average GMS of $2,166 per seller over the previous 12 months, which is up 18% year over year. Altogether, sellers have a total of 80 million items listed for sale on the platform. These artisan and vintage sellers have found a thriving marketplace of interested buyers, which in turn creates a massive opportunity for selling special items you can't find anywhere else.

3. More platform sales

Sales growth on Etsy's platform since the coronavirus started has been impressive. Pre-COVID, platform sales were growing at a healthy 30% plus rate, but then spiked to triple-digit percentage increases as the pandemic spread.

YOY= year-over-year. Data from Etsy earnings reports. Table by author.

The company is forecasting sales for the upcoming holiday quarter to be $2.7 billion to $3.1 billion, representing year-over-year growth of 65% to 85%. This guidance, even on the low end, will be a record for the company. The revenue outlook is $459 million to $513 million, up 70% to 90% year over year. Given those numbers, the holiday quarter could be the company's best quarterly revenue ever, easily surpassing its most recent quarter's mark of $451 million, the current record.

Management has substantially beaten its forecasts in each of the last two quarters, so I'm watching for a three-peat. Etsy has attracted a substantial 33.7 million new and reactivated buyers over the last two quarters and it's likely that many will come back to buy holiday gifts, propelling the marketplace to new heights. 

The takeaway for investors 

If you missed the run in the stock this year, don't worry, there's still a chance to get in on this long-term winner. With massive e-commerce tailwinds, millions of new customers, and a commitment to its sellers and platform innovation, this special marketplace is just getting started. With more shoppers going online for gifts this season, why not pick up a few shares of this growth stock before the holiday rush?