Is Etsy An All-Time Buy Now?

Why is Etsy stock so low? ETSY is down 36.7% year-to-date following disappointing sales reports that missed Street estimates.

The stock that nearly reached $300 per share in 2021 but is now trading under $50 per share. Adding insult to injury, Etsy (NASDAQ: ETSY) was recently dropped from the S&P 500 index.

However, the stock doesn’t need to reach those heights to substantially reward investors who are willing to take a chance on the struggling e-commerce platform. There is even a strong case that Etsy could be an all-time buy, given the huge discount to fair value at which it is currently trading.

The online marketplace has a growing consumer base, a business model that allows it to be agile, and new ways to drive customer engagement. In addition, the company just beat revenue and earnings estimates last quarter, making ETSY appear to be a stock poised to bounce back with conviction.

Key Points

• Etsy’s stock is down 36.7% this year, hurt by weak sales and its removal from the S&P 500.
• New efforts like the Etsy Insider loyalty program and focus on gifting, combined with its asset-light model, could support a rebound.
• Price targets suggest over 30% upside, supported by share buybacks and a strong cash position.

Why Did Etsy Stock Drop?

Though Etsy had a solid quarter, the stock’s persistent decline wasn’t stymied by the company’s earnings report for the second quarter of 2024. Etsy’s consolidated gross merchandise sales was $2.9 billion, which was down over 2% year-over-year. Consolidated revenue went in the opposite direction, up 3% from Q2 2023 to $647.8 million.

Most of the company’s positive revenue growth was a direct result of its marketplace revenue, including both payments revenue and transaction fee revenues from advertising. Etsy’s revenue was also 3% higher than analysts had forecast for the quarter.

The company’s net income was $53 million, which was 14.4% less than last year, a number that was partially affected by a $7.2 million non-income-tax event. Diluted earnings per share were $0.41, which was essentially in line with forecasts.

Management succeeded in increasing active buyers by 1% to 91.5 million and broadened the international base, though the U.S. still accounts for 52% of the platform’s GMS.

“We are investing in strategic growth areas including Gifting, highlighting the best of Etsy through Quality initiatives, launching a new Loyalty Program, expanding our App, and more, while also carefully managing expenses to deliver very healthy profit,” said Rachel Glaser, Etsy’s Chief Financial Officer. “The Etsy marketplace’s record level of active buyers has held up quite well, and we added approximately 12 million new and reactivated buyers during the quarter.”

Will Etsy Stock Go Back Up?

Gifting is one of the company’s most important segments and gifting GMS was up 4.1% year-over-year in Q2, accounting for over a quarter of Etsy’s total gross merchandise sales.

As the holiday season approaches, Etsy has also begun the rollout of its new loyalty program, Etsy Insider. The program will initially be invite-only for selected U.S. buyers and will include free stateside shipping, access to exclusive deals, a birthday surprise, and a limited-edition tote bag.

One of the most important aspects of Etsy Insider is the program will increase buyer engagement without requiring sellers to alter their operations. Etsy will cover the domestic shipping costs for Insiders.

One of the company’s long-time strengths is the intermediary nature of its platform between buyers and sellers, so Etsy doesn’t have to make substantial investments in infrastructure to transport and store the goods that are sold on its marketplace. The model allows Etsy to focus on sales and marketing and in making its platform more efficient.

Turning to the balance sheet, another positive appears with $1.1 billion in cash and cash equivalents at the end of Q2. What that boils down to is Etsy should be poised to move if the economy improves.

Analysts Forecasts For Etsy Stock

Though Etsy is prime contender for a rally, Wall Street analysts are reticent to endorse it as of yet.

Out of 35 analysts who have weighed in on the stock, 21 rate it is a Hold while 10 Buy ratings exist on the stock, including two analysts who rate ETSY as an outperform over the coming year.

The highest price target for the stock is $105 per share, which would be a massive 111.7% increase from where the stock currently trades. The average price target is $65.7, which still translates to a healthy 32.5% gain over the next 12 months.

Four Sell ratings remain on ETSY, and the lowest forecast predicts Etsy shares will slide by 9.3% to $45 per share over the coming year.

Is Etsy Stock Undervalued?

While Wall Street analysts might be on the fence on ETSY according to ratings, the average price target belies a belief that the stock may well be due for a rally. There is no doubt that the stock has high potential to go higher and a discounted cash flow forecast analysis pegs upside of 38% to $66 per share.

Etsy doesn’t pay a dividend, but the company has rewarded its shareholders by repurchasing its shares. In the second quarter of 2024, Etsy bought back roughly 2.4 million shares at a price of roughly $150 million. That signals the confidence of insiders in just how undervalued the firm is.

Is Etsy Stock a Buy, Sell or Hold?

Etsy has certainly faced its fair share of hard times, and it might seem like the last straw for the company was to be removed from the S&P 500 but history has show that companies that have been removed from the index can be rewarding investments. Indeed, the initial selloff often means investors can buy the stocks of strong companies at a discount.

While it might still be up in the air if Etsy is a steal, there are are certainly enough valuation metrics apparent to consider the stock a strong buy now. Etsy has managed to grow its revenue and user base in tough economic times, and its capital light model has been a formula for success that would be dangerous to bet against long-term.

With the launch of the new loyalty program and the continued focus on gifting, Etsy may well be due for a bounce back soon.