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Etsy Inc. (NASDAQ: ETSY) shares have been trading higher ever since the stock bottomed, in the aftermath of the COVID-19-triggered market crash in March. The stock is already up by more than 150% in what is turning out to be a break out year, for the online market place for buyers and sellers.
Etsy Outlook
The meteoric rise does not come as a surprise as the pandemic has presented a perfect business opportunity for e-commerce platforms. A change in consumer shopping patterns from brick and mortar stores to online has seen the likes of ETSY enjoy a surge in online traffic, leading to an increase in sales. A better than expected second-quarter report coupled by impressive third-quarter guidance is the latest development strengthening Etsy sentiments in the market.
The stock has already hit a buy zone with pullbacks emerging as buy opportunities from where bulls have come and continued to push the stock higher. As it stands, ETSY is trading in a steep uptrend and looking extremely bullish. The stock remains well supported for further upside action above the $120 level.
Resistance, on the other hand, is seen at $141. A rally followed by a close above the resistance level should pave the way for Etsy to continue powering high. Similarly, a breach of the $121 support level could pave the way for bears to push the stock back to the $100 level, which happens to be the next support level.
About ETSY
Etsy is an e-commerce company that operates online marketplaces for buyers and sellers. The company offers over 66 million items spread across various retail categories. In addition, it offers seller services such as Etsy payments and advertising platform Etsy Ads.
Why is Etsy Rallying - Online Sales Surge
Etsy has taken the market by storm in recent months on investors taking note of a unique business opportunity presented by COVID-19. With the pandemic disrupting the retail landscape, Etsy has seen an influx of traffic into its e-commerce platform as people do their shopping online and have items dropped at their doorstep.
The online store blew second-quarter financial results affirming the perfect business opportunity presented by the pandemic. Q2 profit more than quadrupled to $96.4 million or 75 cents a share against $18 million or 14 cents reported a year earlier. Etsy has a proven track record of earnings growth with a growth rate of 73.6%. EPS is expected to grow by 50% this year, crashing the industry average of -2.3%.
Revenue more than doubled to $429 million from $181 million reported a year ago attributed to an increase in traffic that saw the platform attract more than 18.7 million new buyers.
Double-digit earnings growth attests to a company in a phase of robust growth, backed by solid underlying fundamentals. It also affirms the company’s long term prospects amid a change in consumer shopping patterns to online.
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“Our extremely strong second-quarter results, with consolidated GMS and revenue up 146% and 137% respectively, are a testament to the agility of our team, the strength of our brand, the innovation of our sellers, and the unique and special nature of inventory on our core Etsy marketplace,” said Josh Silverman, Etsy, Inc. Chief Executive Officer.
An impressive second-quarter report affirms the scalability of the Etsy marketplace model. Backed by a highly variable cost structure and disciplined strategy, the company is in for an impressive year when it comes to revenue and earnings growth. This might as well explain the renewed investor interest in the stock as depicted by the stock powering to all-time highs.
Q3 Outlook
Etsy has invested a great deal on its brand and market place, positioning itself to be one of the biggest beneficiaries amid a change from offline to online shopping. With events of the past few months triggering a dramatic shift in consumer shopping habits, Etsy remains bullish about its performance going forward
Likewise, the company expects its third-quarter revenue to increase by between 85% and 115% to between $366 million and $426 million. Adjusted EBITDA margin, on the other hand, is expected at between $111 million and $127 million, representing an increase of between 28% and 32%.
Bottom Line
Etsy is poised for an impressive year going by the developments in the aftermath of COVID-19. A shift in consumer shopping patterns from offline channels to online shopping is a development that continues to fuel the company’s e-commerce craft leading to sales and earnings growth.
The Brooklyn-based firm niche e-commerce platform is growing steadily, having attracted more than 18 million new customers in the second quarter. Better than expected, second-quarter results depicted by revenue and earnings growth explain why the stock has skyrocketed nearly 200%, crushing the likes of Amazon.com, Inc. (NASDAQ: AMZN) and eBay Inc. (NASDAQ: EBAY).
A combination of strong stock performance at the back of favorable technical and improving fundamentals suggests that the stock could continue rallying after the recent spike.
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