The recent market correction and tech selloff has provided some investors with some nice value entry points to some of the most popular companies. At the top of this list is social media platform Etsy (NASDAQ:ETSY) which was one of the big winners of the COVID-19 pandemic before the stock proceeded to spiral downwards over the past few weeks.
Since the beginning of August, shares are down over 16% from it's all-time highs of $141.41 per share. Still, investors should be happy with the returns over the last year as Etsy is still up over 107% during the past 52-weeks, which has outpaced the S&P 500 by nearly 100%. The stock has definitely done well, but can it return to its previous lofty levels?
Some may attribute Etsy’s recent success to the coronavirus quarantine where everyone is staying inside of their homes and buying the things they need online. Etsy sellers have sold over $345 million in face masks alone during the second quarter of 2020, a trend that could continue as long as COVID-19 is around, and most likely after as well. Take out those face masks though and overall site sales still grew by over 90% and total sellers also increased by 35% year-over-year. The platform is definitely growing and it is not just because of COVID-19. Like many other aspects of our life, the pandemic merely accelerated Etsy’s inevitable growth.
Etsy is no longer just artists selling homegoods to people who want something unique. Celebrities crossovers are becoming more popular as well, giving Etsy a legitimacy in pop culture amongst the younger generations. The site itself has evolved as well as the platform is driven by strong machine learning and search algorithms that have not only attracted more buyers to the site, but it has kept them loyal to the brand, creating a nice recurring revenue stream. What happens when there are more buyers? The site attracts more sellers! Organic growth within the site is a key reason as to why Etsy has gained in popularity.
There is of course, competition. Earlier this year Facebook ($284.79|2.40%) introduced a payment system directly on Facebook pages and Instagram sites for artists and sellers alike. The fees for Facebook sellers are much lower than Etsy’s, where seller revenues make up a quarter of the business. Time will tell if that has any impact on Etsy, but it could just turn out that sellers are using both platforms to sell their goods.
So can Etsy rebound? Absolutely. The year-over-year growth is real and while COVID-19 helped to accelerate this, the growth was coming one way or another. Another factor is that Etsy is already profitable, even at its early stages. Operating cash flow was $375 million last year and Etsy is already running a near 14% profit margin. Etsy may not immediately return to its lofty all-time highs, but the recent correction for tech stocks seems to be finished, so investors may want to take advantage of the current levels as a nice entry point.
Disclaimer: I have no positions in any of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. All information should be independently verified and should not be relied upon for purposes of transacting securities or other investments. See terms for more info.