What happened
Etsy (ETSY -0.86%) stock gained 64% in the second half of 2022, according to data provided by S&P Global Market Intelligence. The company has successfully navigated inflation with a fee hike, and investors are back to recognizing its long-term potential.
So what
Etsy was a niche marketplace for handmade goods before the pandemic. Correction: It's still a niche marketplace for handmade goods, but it has seen this niche go mainstream as customers discovered its unique and exclusive products with the explosion of e-commerce.
Etsy itself exploded with surging demand for handmade masks, and customers introduced to the platform when looking for pandemic-related paraphernalia are sticking around for more. The company has struggled with year-over-year comparisons in the face of such enormous growth, and it's now working to keep demand strong. Its recent performance could only be called mixed.
In the 2022 third quarter, gross merchandise sales declined slightly year over year or were about flat currency neutral. Some of the issues Etsy faced include the strong dollar, general economic volatility, difficult year-over-year comparisons, and people returning to physical stores.
Despite these, Etsy was able to post a 12% increase in total revenue over 2021. That was mostly due to a fee increase that went into effect in April. That demonstrates the value that Etsy provides as a marketplace to its sellers who use the Etsy platform.
Etsy posted a $963 million net loss in the third quarter, down from $1.1 billion in net income last year. That was almost entirely due to a $1 billion impairment charge related to its acquisitions of Depop and Elo7. Adjusted EBITDA might be more useful as a measure of operational efficiency in this case and came in at $168 million, a more modest 3.7% decrease year over year.
Now what
There are many signs of continued strength, such as more than 6 million new buyers in each of the past two quarters, on top of even more before that. Habitual buyers, who spent at least $200 on at least six purchases in the past 12 months, remain an important sales generator at 6.8 million.
As an asset-light company, Etsy produces a lot of cash, and that remains elevated from before the pandemic.
ETSY Free Cash Flow data by YCharts
Even though Etsy stock has gained back some of the value it lost at the beginning of 2022, it's still down 33% over the past year. The worst does look like it's over, and Etsy stock could create strong shareholder value over the long term.
