Black Friday may be over. But holiday shopping is just getting started. And that's great news for retailers. The next big day is tomorrow, Cyber Monday. This shopping event is all about fantastic deals online. E-commerce giants like Amazon should generate significant sales. But there's another e-commerce player that may be an unexpected Cyber Monday winner.
I'm talking about Etsy (ETSY -2.17%). The seller of handmade items may look particularly attractive to shoppers this holiday season. We'll talk about that more below. Let's take a closer look at Etsy and find out if it's a buy -- on Cyber Monday and beyond.
Connecting sellers and buyers
First a little background. Etsy is on online marketplace that connects small individual sellers to buyers. Business boomed during the worst days of the pandemic. That's as people stayed home and favored shopping online.
Growth has slowed from that point. For instance, on a currency neutral basis, Etsy marketplace gross merchandise sales (GMS) rose only 0.2% to $2.6 billion in the third quarter of this year. But the good news is Etsy has kept most of the gains it made during early pandemic days. Today, the Etsy marketplace is twice as big as it was prior to the health crisis.
And if we compare recent revenue growth to pre-pandemic days, it's clear Etsy has made significant progress. Etsy marketplace GMS soared 134% in the third quarter compared to the same quarter in 2019.
Etsy has done a great job of attracting shoppers -- and keeping them. The company has about 7.6 million habitual buyers, and they drove 46% of GMS in the quarter. As for new buyers, Etsy added about 6 million. That's 50% higher than in pre-pandemic days.
All of this sounds good. But why will Etsy stand out during Cyber Monday? First, Etsy has a track record of being a go-to shopping destination on this day. Last year, Etsy reported a record 2,000 orders per minute on Cyber Monday. And about a half a million Etsy sellers offered sales on this day. That was a 27% increase from the prior year.
What may help Etsy
This year, a couple of elements may work in Etsy's favor. First, as shoppers watch their budgets, they may like Etsy's huge selection of small, inexpensive gifts. The idea is you can buy a quality item without spending a fortune.
Second, Etsy and its sellers don't face as much pressure from today's economic situation as traditional retailers. Etsy sellers are small businesses. They don't run warehouses, ship items in quantity, or store huge amounts of inventory. That means they can sell items for reasonable prices -- and ship them out on time. Buyers usually won't see "out of stock" near an item on Etsy. This could keep already loyal shoppers coming back.
I don't expect the 2022 holiday season to stand out over time as Etsy's best. Economic pressures surely will weigh on all players -- including Etsy. Still, we may expect some strength from this innovative company in the fourth quarter.
Does this make Etsy a buy? Performance during this period could add to the case for buying Etsy. But I wouldn't buy the shares just for a potential holiday sales win. It's important to look at the complete, long-term picture and today's valuation.
Right now, Etsy trades for 28 times forward earnings estimates. That's compared to more than 60 about a year ago. This looks cheap considering Etsy's ability to keep its gains from early pandemic days and maintain growth even in a difficult environment. All of this means Etsy isn't just a Cyber Monday buy -- it's a stock to snap up now and hold onto for the long haul.
