Disney is a corporate behemoth, known for its box-office blockbusters, global theme parks, and generations-old intellectual property like Marvel, Star Wars, and the animated characters that make up the core of the Disney brand. Etsy, on the other hand, is the digital equivalent of a flea market, a massive bazaar made up of independent sellers around the world, hawking everything from jewelry to clothing to greeting cards and more.
Both stocks have been winners in recent years, though Etsy has delivered skyrocketing returns thanks to tailwinds from the pandemic, which have sparked a boom in e-commerce. Etsy may have been the winner recently, but which stock is the better buy going forward? Let's take a look at what each one has to offer.
A new Disney
Over the last year, Disney (DIS 3.69%) has changed dramatically. Following the blowout success of Disney+, which now has close to 100 million subscribers, the company has restructured the business to prioritize streaming, feeding new content from Star Wars, Marvel, Disney, and Pixar to Disney+ and separating its creative and distribution teams to ensure that there aren't any channel conflicts.
The emergence of Disney+ has driven the stock to all-time highs even as the overall business has struggled during the pandemic. In its most recent quarter, revenue fell 22% to $16.2 billion and adjusted earnings per share plunged 79% to $0.32. Its parks, experiences, and products segment was hit especially hard, with revenue falling 53%. However, investors have been willing to look past those temporary challenges, as its theme parks should experience a sharp recovery later in the year as the pandemic fades. In fact, a number of analysts are expecting pent-up demand to deliver a surge of business to the travel and entertainment sector, Disney included.
That, along with the emergence of its streaming business, which also includes Hulu, ESPN+, and the new international property Star, adds up to a compelling value proposition for investors.
Etsy's mission is to keep commerce human. The company's unique mix of handmade and vintage products on an online marketplace gives it a number of competitive advantages. It's withstood competition from even Amazon, which launched its own Etsy competitor, Amazon Handmade, a few years ago -- though that's done little to knock Etsy off its growth track.
The online marketplace's web traffic has tripled from a year ago and business has surged during the pandemic. Etsy showed its flexible business model with many of its sellers pivoting to selling face masks, which had been a key source of growth earlier in the pandemic.
In the third quarter, revenue jumped 128% to $451.5 million, and adjusted EBITDA more than tripled to $151.4 million, showing the company can deliver strong profit margins along with blowout growth. There was a jump in categories like home goods and home furnishings, and craft supplies.
The big question for Etsy now is whether the company can build on its pandemic-fueled gains once the economy normalizes. At this point, analysts are skeptical of that, as the consensus calls for just 12% top-line growth this year. Before the pandemic, Etsy was growing revenue by about 30% a quarter.
Which is the better buy?
Both Disney and Etsy appear to have bright futures ahead of them. With Disney+ building an audience of nearly 100 million in a little more than a year, it's clear that the entertainment giant will join Netflix as streaming royalty, transforming the video entertainment industry and unlocking huge opportunity that gives the company a direct pipeline for content into consumers' homes. The company also looks set to derive substantial tailwinds from the end of the pandemic, as Disney fans are likely to return en masse to theme parks like Disney World.
Etsy, meanwhile, also looks to have a lot of growth in front of it, as it occupies a unique niche in e-commerce that is attractive to both sellers seeking an outlet for their creativity and buyers on the hunt for original items. Though the company could experience a hangover as it laps its blowout results during the pandemic, the crisis surely gave a long-term lift to the brand, bringing in millions of new buyers and elevating brand awareness. The natural growth in e-commerce should support Etsy over the long term, as will the company's own improvements to the platform and acquisitions like Reverb, the musical instrument marketplace it acquired in 2019.
The better buy between Disney and Etsy likely depends on what type of investor you are. A growth investor will be more likely to choose Etsy, as that stock has an unbeatable track record with a gain of 1,000% over the last three years, while Disney would appeal to more balanced investors looking for a mix of safety, income, and growth.
Of the two, I would choose Disney today because that company is set to see a strong tailwind from the end of the pandemic, while Etsy is facing a significant headwind, but there are a lot of good reasons to bet on Etsy over the long term.