Etsy’s (NASDAQ: ETSY)  stock price rallied over 20% on Tuesday and Wednesday following quarterly results that beat expectations across the board. The online marketplace for creative goods announced 4th quarter EPS of $0.32, well ahead of the $0.2 that was expected. Revenue for the quarter came in at $200 million, ahead of the $194 million Wall Street analysts expected.

Earnings grew 46.8% YoY in Q4, after growing 41.3% in the 3rd quarter and 30.2% in the 2nd quarter.

Quarterly growth was boosted by the holiday season which saw earnings grow 46.8% YoY, after growing 41.3% in the 3rd quarter and 30.2% in the 2nd quarter. Gross merchandise sales increased 22.3% year over year to $1.25 billion, up from 20.4% in the 3rd quarter.

For the financial year, earnings per share were $0.32, down 11.1% from $0.36 the previous year, reflecting increased expenses.

The latest results saw the number of active buyers on the site growing 18.2% and the number of active sellers growing 9.4% compared to the previous year. Etsy also managed to increase its sources of revenue by increasing revenue from services supplied to sellers 41.7% from the previous year.


Etsy Expects Revenues to Increase Along with Margins

Forward-looking guidance was slightly more modest on the revenue front, with 2019’s revenues expected to be between 29 and 32% higher than 2018’s, which will bring it to between $779 and $797 million. However, the company expects margins to continue to grow, and adjusted EBITDA to be as much as 40% higher.

In many ways, Etsy can be thought of like a mini Amazon. It has a wide moat and currently has no direct competition.

There’s no doubt this was an excellent set of results. The stock is now trading at 52x forward 2020 Price to Earnings (P/E) multiple. Given the underlying high double-digit growth rate in the business the valuation is still reasonable.

In many ways, Etsy can be thought of like a mini Amazon. It has a wide moat and currently has no direct competition. That’s not to say its success won’t attract competition in the future, but the company already has a formidable head start. The market also ascribes Amazon a high valuation multiple for its business model and growth, it trades on 40x 2020 P/E multiple.

Etsy has been underestimated since it listed when it was thought of as interesting, but too much of a niche operator to grow meaningfully. The company’s success proves that there is a growing number of creative people wanting to sell their products, and a growing number of people buying handmade products.


International Opportunities Leave Room for Growth

Moreover, international sales accounted for just 36% of gross merchandise sales, showing there is plenty of room for the marketplace to grow internationally. Add to that the fact that margins and revenue are both increasing, and Etsy should be able to grow earnings for at least a few more years. Factor in a few years of double-digit growth and the price multiple won’t look so stretched.

If you look at Amazon’s history, buying the stock at almost any valuation eventually paid off given the prolific growth in the underlying business. For at least the next year or two the same will probably be true for Etsy – undoubtedly there will be price volatility along the way.


Grizzle Nailed the Buy Call on the Etsy in May 2018

Grizzle’s President Thomas George highlighted Etsy as one of his top 3 picks on the BNN Bloomberg Market Call Show on May 14, 2018 when the stock was trading at $29.42. At $71.15 the stock is now up 141% since his highlighting the opportunity on the show.

Source: Yahoo Finance

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