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Etsy Preview: Do Website Uptrends Indicate a Strong Q1?
Stock Analysis & Ideas

Etsy Preview: Do Website Uptrends Indicate a Strong Q1?

Online marketplace platform provider Etsy (NASDAQ: ETSY) is gearing up to release its first-quarter 2022 results on Wednesday, May 4, in the shadow of its biggest competitor Amazon’s (AMZN) sharp valuation loss last week following its dismal earnings report. A weak guidance strengthened the belief that e-commerce growth might be slowing down. High inflation and an uncertain economic outlook are weighing down spending habits.

For any existing or prospective Etsy investor, the question has arisen if the handmade and vintage goods ecommerce marketplace has the ability to pull through Q1 any better than Amazon did.

Regardless of the macroeconomic headwinds and consumer habit shifts, we do see some strong upsides that Etsy might have witnessed in Q1, including a growing collection of unique items, and positive contributions from its acquisitions of Depop and Elo7.

However, being an e-commerce company, the volume of visits to its website says a lot about how the sales performance might have been during the three months of the first quarter.

Website Trends Give Hope

With the help of TipRanks’ unique tool, we found that in Q1, visits to both of Etsy’s online domains —etsy.com and depop.com — were up 3.9% from the previous quarter, i.e., Q4’21. This is good news for Etsy as the more visits to the website, the higher the chances are of them converting to a sale.

Moreover, when we checked for year-over-year comparison, we found that there have been 49.92% more virtual footfalls to its websites in Q1’22 as compared to Q1’21.

When we cross-checked with the management’s expectations for Q1, we found that our findings of Etsy’s website trends somewhat conform with what management had guided in Etsy’s last quarter earnings call. Management expects a 2.5%-7% year-over-year growth in sales during the quarter.

Moreover, gross merchandise sales, which is a better measure to see how well the items on the website are selling during a particular period, is expected to increase 3.2%-9.7% year-over-year.

“Even without the significant tailwinds of stimulus checks and lockdowns, our first quarter 2022 guidance reflects our expectation that we will keep all of the gains made in 2021,” management had said in Etsy’s last earnings call.

An Expert Opines

The weeks leading up to Etsy’s earnings release due on Wednesday have been tense. The ecommerce market, in general, has been going through a trough, and outlooks for several ecommerce companies have been trimmed recently.

Thankfully, most of the pessimism has reflected on price targets rather than rating, as the company still enjoys a Strong Buy consensus rating based on nine Buys and two Holds. Also, the ETSY price projections point at an average price target of $185, which is not bad considering that represents an upside of 90.58% from pre-Tuesday price levels.

Most recently, BTIG analyst Marvin Fong lowered the firm’s price target on Etsy to $140 from $195 taking into account the sector-wide multiple compression. However, he maintained a Buy rating on the shares.

The analyst found that Etsy was the top sales channel for sellers. Moreover, Fong was also optimistic about Etsy’s “dominant position within the handmade/special vertical with low risk of displacement by competitors given their prior unsuccessful efforts.”

Conclusion

Fong’s analysis appears to corroborate with our website traffic findings, as more sellers on the platform might have added to the diversity and volume of products sold, in turn attracting more customers. Also, low competitive risk means a more stable buyer-seller interaction on the platform.

Nonetheless, there are various other factors like volatile macroeconomic conditions, including supply and logistical constraints and high inflation, that need to be considered before understanding how the company might have fared in Q1. If the website visit trends are anything to go by, they look solid enough to be capable of pulling up sales. However, it remains to be seen whether sales can offset the other headwinds.

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