Etsy (NASDAQ: ETSY) is a US-based e-commerce company that specializes in vintage goods, handmade items, and craft supplies. Despite being relatively niche a few years ago, Etsy has quickly grown in popularity with consumers looking for a small business-based Amazon alternative. The e-commerce company has been enjoying catching the eyes of investors everywhere due to solid guidance from management and a low cost, this resulted in the mentions of Etsy increasing by 84.09% over the past day. The price of Etsy stock is currently hovering around the $86.5 region, a sharp decrease from January highs of over $200.
Is Etsy a Good Investment - Positives
To give our readers a better understanding of why adding Etsy to their portfolios is a good choice, here are a few of the main arguments in favor of the e-commerce company.
Etsy has been growing rapidly over the past couple of years as consumers look for alternatives to Amazon. People have always preferred supporting small businesses but now it seems it's happening on Etsy rather than the high street.
Despite Etsy’s revenue slowing during Q1 2022, the business was still able to increase sales by a massive 44% annually over the past 5 years. Unfortunately, Etsy enjoyed the majority of its growth during 2020/21, meaning investors' expectations could be slightly lofty, however, Etsy does seem confident it’ll be able to make good on its guidance.
You’d be forgiven for thinking that Etsy had minimal competition. While it’s true that nobody is doing quite what Etsy does, Amazon certainly tried to. The online retailer launched its own handmade goods marketplace and attempted to crush Etsy for seven years. Despite this, Etsy managed to keep on track and grow steadily, showing just how strong the business model is, even in the face of stiff competition.
Etsy was able to capture more than 7 million new buyers during Q1 2022, an incredibly impressive figure considering all that’s happening in the world right now. Furthermore, Etsy has managed to increase its gross merchandise sales (GMS) per active buyer by roughly 10% year on year.
While it’s true that Etsy has been slowing down in terms of growth over the past year, it’s important to consider macroeconomic implications like COVID, the war, and cost of living increasing. Etsy enjoyed a 111% revenue increase during 2020, followed by a further 35% increase in 2021. During Q1 2022, Etsy only posted a 5% revenue increase but while on the surface this may seem like they’re going backward, in reality, it’s a testament to Etsy’s ability to stand strong and continue growing, even during periods of turmoil.
Is Etsy a Good Investment - Negatives
When deciding on whether an investment is right for you, it’s crucial to weigh the positives against the negatives. To make that a breeze, here are a few reasons why it might be better to avoid buying Etsy stock.
With the cost of living increasing, inflation hitting hard, and recessions seemingly hovering above us like a raincloud, people are simply spending less than they were a year or two ago. This, naturally, led to sales/revenue slumps and stock sell-offs. These factors, combined with negative market sentiment have led to Etsy stock dropping by around 60%.
In an effort to combat reduced sales, Etsy recently announced it would be increasing fees for sellers using its platform to 6.5% from 5%. This led to some sellers vowing to leave the platform, claiming it's becoming too commercial. However, Etsy's CEO has since stated that less than 1% of sellers actually left the platform after the announcement. Only time will tell how this increase will affect Etsy’s ability to grow its active seller numbers.
Hype Asset of the Day - Conclusion
Etsy is an online e-commerce company that has managed to remain fairly strong despite pressure from Amazon and times of hardship. At its current price, Etsy makes a compelling argument for a solid value investment as it seems poised to rapidly grow over the next few years as consumer spending slowly returns to normal. Therefore, it could be the perfect time to load up on Etsy shares while prices are still low. If you’d like to get updates on more trending stocks, straight to your inbox, check out our premium plans. Or alternatively, head over to our FAQ page to learn more about the services offered by HypeIndex.
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