Etsy Turns in a Monster Win For the Quarter

A big win is a big win, and for Etsy (NASDAQ:ETSY), a big win looks like nearly doubling estimates on earnings. The company some dismiss as being little more than an eBay (NASDAQ:EBAY) for crafts turned in some serious numbers with its latest earnings report, and should make some more actively consider getting involved with this homemade marketplace.

One Seriously Great Fourth Quarter

The fourth quarter is commonly a big deal for retailers of all sorts; that's why the term “Black Friday” was invented, after all. It's the day on which retailers go from red ink to black, demonstrating profitability. Etsy's fourth quarter was an absolute beast, as the company brought in $1.08 per share in earnings against an expected $0.59 per share at Refinitiv. Revenue also turned in a beat, though perhaps not quite so pronounced a beat, coming in at $617.4 million against an expected $516 million.

Better yet, Etsy offered guidance for the future that suggests that just because retailer prime-time has come and gone for another year, don't expect the good times to slow down much. Etsy is projecting revenue for the first quarter to be between $513 million and $536 million. Considering that analyst forecasts were looking for $383 million, it looks like Etsy has another beat planned for a few months from now. Etsy demurred on full-year forecast numbers, however, citing the standard reason of uncertainty around the pandemic.

What fueled these incredible numbers? Return business, for a lot of it. Not only did Etsy report 160% growth in what it calls “habitual buyers,” it also generated 61 million new or “reactivated” shoppers. With numbers like those on its side, it's easy to see how Etsy generated the raw revenue numbers it did.

A Stable Analyst Picture

The word from the broader analyst pool, as based on our latest research, has actually been quite stable for the last six months. The company has a consensus “buy” rating as it has for that whole six-month period, and the ratios that comprise said consensus have stayed remarkably stable that whole time.

Six months ago, the company's consensus rating was comprised of one “sell” rating, one “hold” rating, and 16 “buy” ratings. Three months ago, that shifted slightly to one “sell” and 17 “buy” ratings. That was the high-water market for bullishness, though, as a month ago, the “hold” came back and the “buy” lost ground, going to one “sell”, one “hold” and 15 “buy.” Today, the ratio is exactly the same as it was six months ago: one “sell”, one “hold”, and 16 “buy.”

Meanwhile, the price target has been rapidly trending upward. Six months ago, it sat at $124.38. Three months ago, it jumped to $140.05. One month ago, it jumped again to $158.52, and now, it's jumped again, reaching $187.14, which is not only a six month high, but also the first time the price target has expressed downside risk as the company's share price is currently $212.58 as of this writing. Seven analysts increased their price targets on Etsy just this morning, including names ranging from Roth Capital to Goldman Sachs.

Will It Look Like Lowe's?

Etsy occupies an unusual part of the market: the handmade and vintage market. Where formerly, this would have been the province of antique stores or “junk shops”, Etsy allows a one-stop shop for everything unusual or homemade. This has to come as a blow to small towns, which are often full of such small businesses. However, it certainly comes as a boon to the shopper, who can now spend hours browsing a website full of such items instead of traipsing from store to store.

Better yet, Etsy has a clear competitive advantage here. It can lure in suppliers with that one-stop shopping convenience just as readily as it can lure shoppers; after all, there's something to be said for getting your product—anything from toys to bathroom fixtures to even a kind of black iron shelf bracket that's apparently a best seller—in front of a huge crowd.  While it's possible to get a similar effect on eBay, it's much more difficult to do so as eBay shoppers tend to focus on used or difficult-to-find manufactured goods.

Granted, some of that edge will likely fall away in the near term. With shoppers able to get up and go out again in most places to at least some degree, more likely will. That's also going to put pressure on the everything-at-home movement, which means the need for new shelf brackets will fall away a bit. Only a bit, of course; we know from earlier reports that home improvement superstores like Lowe's (NYSE:LOW) and Home Depot (NYSE:HD) are looking for slowdowns, but homebuilders are looking to see gains continue for some time as they work through their backlogs. Essentially, look for about the same thing to happen to Etsy that happens to the rest of the home improvement market: a return to normalcy, with big gains lost, but gains still realized.