It's nice to think about, isn't it? A bull run in 2023 would be welcomed by investors, especially after the rough 2022 experienced by the stock market. While there's no way to know how 2023 will turn out, it's interesting to consider what companies would benefit most from an up year in the markets.
It's true that a 2023 bull run would likely be a rising tide that would lift most stocks. That said, companies in the consumer space could stand to see outsized gains if shoppers feel confident and increase spending. In that scenario, Etsy (ETSY +0.25%) could end up being a big winner. Let's dig in and see why.
Etsy is a unique marketplace
Etsy operates a two-sided marketplace that carved out a niche in the online retail space. It is a platform where shoppers can come to find unique, handcrafted gifts. Likewise, for those creating the gifts, Etsy provides everything necessary for running a successful business. In fact, a survey of Etsy buyers found that 87% of buyers said Etsy sells items that can't be found anywhere else.
NYSE: ETSY
Key Data Points
If we see strong consumer behavior in 2023, Etsy is likely to benefit from that spending due to its unique offerings. Past performance seems to suggest this has already been the case. When compared to 2019, active buyers on the platform doubled from 44 million to 88 million. These buyers are also spending more. Gross merchandise sales (GMS) per active buyer (the total value of sales on Etsy divided by active buyers) jumped 33% since 2019.
Additionally, 49% of Etsy buyers are repeat buyers, and 8% of buyers are what the company considers to be habitual buyers -- that is, someone who made purchases of at least $200 on six or more days over the previous 12 months. There's no denying that once shoppers find Etsy, they're likely to continue to spend.
Etsy is flexing its pricing power
In early 2022, Etsy announced it was raising its seller transaction fee from 5% to 6.5%. The business stated the proceeds from the fee increase would be used to improve the seller experience. A small but vocal group of sellers protested, but in the long run, the results spoke for themselves.
By the end of the first quarter in 2022, the impact on seller behavior was negligible, as less than 1% of sellers went on temporary vacation mode in protest, and the impact on GMS was not material. On the positive side, the increased fees contributed to Etsy's solid financial performance. Year-over-year marketplace revenue growth was 11% and 12% in Q2 and Q3 2022.
Cohort data suggests continued growth
One interesting metric that Etsy reports is the spending of yearly cohorts. By looking at the GMS purchased by each cohort as a percentage of its initial year on the platform, Etsy can see that the longer buyers remain on the platform the more they spend.
|
GMS Retention Rate | ||||
|---|---|---|---|---|
|
Cohort |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
2017 New Buyers |
100% |
36% |
48% |
76% |
|
2018 New Buyers |
100% |
46% |
71% | |
|
2019 New Buyers |
100% |
62% |
Data source: Etsy
This will be interesting to keep an eye on moving forward. If Etsy can continue this trend, the future results should remain strong. If the consumer is spending in 2023, it could be a benefit to this metric and a validation of Etsy's unique place in the retail market.
Etsy isn't a cheap stock. It currently trades for a price-to-sales (P/S) multiple of 8 and a price-to-earnings (P/E) multiple of 36. That said, Etsy's P/S and P/E are below their historical averages. Investors are paying up for the market's belief that Etsy has growth coming in the future. If the market has a booming 2023, the premium will have been worth it for shareholders.
