Etsy stock analysis. Ticker: ETSY
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At the latest share price, the company has a valuation of 9.4 billion dollars. It’s got 1.2 billion of cash on the balance sheet and 2.3 billion of long term debt so the enterprise value is 10.5 billion.
Revenue over the last 12 months is 2.7 billion with 731 million of adjusted ebitda and 660 million of free cash flow. Net income at minus 717 million has been impacted by stock based compensation and increased spending in product development.
So ETSY is valued at 3.4 times revenue, 14 times ebitda and 16 times free cash flow. The story at Etsy is really about growth going forward. The pandemic pulled forward demand and that is clearly seen in the flattening growth rates across the board.
Gross merchandise sales across the company dropped 0.6% year over year, revenue increased by 7.5% but adjusted ebitda still dipped by 1%. In fact ebitda margins have fallen from 28.3% to 26.4% and that’s despite the company raising seller fees.
Bulls might argue that Etsy is showing signs of its business stabilizing since gross merchandise sales are falling at a slower rate than in previous quarters. They might also point to stabilizing repeat buyers and a 3% increase in total active buyers to 91 million.
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At the latest share price, the company has a valuation of 9.4 billion dollars. It’s got 1.2 billion of cash on the balance sheet and 2.3 billion of long term debt so the enterprise value is 10.5 billion.
Revenue over the last 12 months is 2.7 billion with 731 million of adjusted ebitda and 660 million of free cash flow. Net income at minus 717 million has been impacted by stock based compensation and increased spending in product development.
So ETSY is valued at 3.4 times revenue, 14 times ebitda and 16 times free cash flow. The story at Etsy is really about growth going forward. The pandemic pulled forward demand and that is clearly seen in the flattening growth rates across the board.
Gross merchandise sales across the company dropped 0.6% year over year, revenue increased by 7.5% but adjusted ebitda still dipped by 1%. In fact ebitda margins have fallen from 28.3% to 26.4% and that’s despite the company raising seller fees.
Bulls might argue that Etsy is showing signs of its business stabilizing since gross merchandise sales are falling at a slower rate than in previous quarters. They might also point to stabilizing repeat buyers and a 3% increase in total active buyers to 91 million.
#investing #stocks #overlookedalpha
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NewsTranscript
00:00 Etsy stock got a boost from the pandemic. With so many people stuck at home, many turned
00:05 to crafting and online shopping. Since then however, revenue growth has slowed and the
00:09 stock has come back down to earth. At the latest share price, the company has a valuation
00:14 of $9.4 billion. It's got $1.2 billion of cash on the balance sheet and $2.3 billion
00:20 of long term debt, so the enterprise value is $10.5 billion. Revenue over the last 12
00:26 months is $2.7 billion with $731 million of adjusted EBITDA and $660 million of free cash
00:33 flow. Net income however at -$717 million has been impacted by stock based compensation
00:41 and increased spending in product development. So Etsy is valued at 3.4 times revenue, 14
00:47 times EBITDA and 16 times free cash flow. The story at Etsy is really about growth going
00:53 forward. The pandemic pulled forward demand and that is clearly seen in the flattening
00:57 growth rates across the board. Gross merchandise sales across the company dropped 0.6% year
01:03 over year. Revenue increased by 7.5% but adjusted EBITDA still dipped by 1%. In fact EBITDA
01:11 margins have fallen from 28.3% to 26.4% and that's despite the company raising seller
01:19 fees.
01:20 Some fools might argue that Etsy is showing signs of its business stabilising since gross
01:24 merchandise sales are falling at a slower rate than in previous quarters. They might
01:29 also point to stabilising repeat buyers and a 3% increase in total active buyers to 91
01:36 million. But a 3% increase isn't scintillating growth. Pretty much every metric is showing
01:41 only modest performance and that includes company guidance.
01:45 The number of habitual buyers on the platform continues to decline from 8 million in 2022
01:51 to 7.1 million in the latest quarter. The truth is that Etsy operates in a relatively
01:56 small niche market. The overall takeaway from all of these results is a flat lining of performance.
02:02 If you assume that Etsy can grow its revenue at 10% per year for the next 10 years then
02:07 operate with an 18% net income margin. Revenue in 10 years time would be roughly 7 billion
02:13 and net income would be roughly 1.3 billion. Apply a 20 times multiple and the valuation
02:19 gets to 26 billion which works out to an investment return of 10.7% a year.
02:25 The problem is that might be an optimistic forecast. Ebay for comparison manages only
02:30 a 14% net income margin and trades at a P/E of only 18.
02:35 Etsy may be able to increase its earnings by raising its fees further but that isn't
02:40 going to solve the problem of future growth. The stock isn't particularly expensive now
02:44 but it's also not compelling which is why I give the stock a neutral rating but these
02:48 are my personal opinions not financial advice and I've got no position in Etsy stock.
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