While tech giants dominate earnings season, investors shouldn't overlook smaller companies. One such firm is Etsy (NASDAQ: ETSY). Wall Street doesn't like it since its growth has slowed in the economy. But don't despair. Etsy is a growth company to purchase today, despite being down 75% from its top price (Feb. 2).
Etsy thrived selling unique, specialized things throughout the epidemic. It grew rapidly in 2020 and 2021. However, 2022 and last year saw a sharp slowdown. Gross merchandise sales (GMS) dropped 1.4% to $9.2 billion in the first nine months of 2023.
Inflation and increasing interest rates discouraged discretionary expenditure. Etsy saw the effects since its main product categories include home furnishings, jewelry, and fashion, which customers might defer in hard circumstances.
Management painfully laid off 11% of the workers last December. "We are operating in a very challenging macro and competitive environment, and GMS has remained essentially flat since 2021," CEO Josh Silverman said. Executive moves that suggest lackluster demand make it hard for investors to remain positive about the short term.
It's little wonder the stock fell 32% in 2022, lagging the S&P 500 and Nasdaq Composite. Latest macro trends and company performance are easy to get caught up with. Long-term investors should focus on the company's fundamentals and how they may change over time. In this light, Etsy has great potential.
The company grows its customer base. Current active suppliers and purchasers are 8.8 million and 97.3 million, respectively, rising sequentially and annually. Why do people frequent this market? In December 2023, Etsy had 651 million visits, making it the world's leading specialized products online marketplace.
Etsy gives merchants money processing, advertisements, and shipping labels to improve their online stores. For purchasers, search and discovery features, notably machine learning, have been improved to assist them locate what they need.
Supporting Etsy's enormous network effects is key. The company wants to increase engagement, spending, and income by improving the user experience and connecting consumers and sellers worldwide. In fact, running a successful two-sided platform has already proven quite profitable. Over five years, Etsy's operating margin averaged 16.4%. GMS's scalable and asset-light business strategy should generate high free-cash-flow as it grows.
At 15.7 projected price-to-earnings, Etsy stock is as cheap as ever. The present economy hasn't been good for this firm. The good news is that the economy expands more than it contracts. Long-term investors shouldn't miss this uncommon chance to acquire a competitively advantaged corporation at a substantial discount.
STAY TURNED FOR DEVELOPMENT