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In the past five years, Nasdaq Composite Index is up 112%, an impressive increase that investors should be happy with. But not all stocks fared as well.
take Etsy (NASDAQ:ETSY). The company’s stock price has only increased 24% since February 2019. It also missed out on the market’s impressive rally in 2023. Investors are completely fed up with Etsy, which is currently trading at a very low price. forward price earnings ratio 15.6.
before buying this Top stocks in e-commerceHere are three facts you need to know about business.
1. Marketplace business model
A typical retailer buys inventory from various suppliers, increases the price and sells it to customers. Etsy doesn’t work this way. Instead, he operates his online marketplace that connects his 96.5 million active buyers with his 9 million active sellers, collecting fees in the process.
Therefore, Etsy does not own the products, warehouses, or trucks. This frees up capital and makes Etsy an asset-light company that enjoys strong returns. network effect. This is a unique business model in the retail industry and more similar. eBay or Amazonthird-party marketplaces, and not-so-similar walmart or the goal.
Etsy’s platform has demonstrated an incredible ability to scale up profitably.The company reported adjusted numbers. EBITDA The margin is expected to be 27.4% in 2023, up from 11.8% in 2014. Considering that the technical infrastructure has already been largely built, each margin trade that occurs in the market should yield high margins.
2. Macroeconomic headwinds
Etsy specializes in unique vintage and handmade items in a variety of product segments. At the height of the pandemic, when people carried cash, travel restrictions were in place, and the economy was in a zero interest rate environment, gross merchandise sales (GMS) and revenues soared.
In the current economic climate, the situation is very different. Etsy was able to grow its revenue by 7.1% in 2023 thanks to fee increases, while GMS decreased by 1.2% year-on-year. Ongoing macro headwinds continue to weigh on consumer discretionary spending.
Understanding the current predicament, management recently announced that it would lay off 11% of its workforce in order to better align expenses with demand trends.
“While Etsy Marketplace is still more than twice the size of 2019, we must recognize and adapt to today’s reality,” said CEO Josh Silverman. “We operate in a very difficult macro and competitive environment.”
If there is Recession is imminent, it’s hard to be optimistic about what Etsy will do in the short term, no matter how unlikely economists think it is. People may postpone purchases until they feel more confident about the state of the economy.
3. Large addressable market
Etsy’s total addressable market (TAM) is valued at $466 billion, according to executives. If we calculate his total GMS for 2023, this company will account for only 2.8% of this huge sum.
Investors should discount indicators of projected market opportunity. Management uses these to increase interest from new and existing shareholders, often significantly overstating the total value. Keep this in mind, even on Etsy.
Etsy management’s TAM numbers include all online sales of relevant product categories in seven core markets, including the United States, Canada, United Kingdom, Germany, France, Australia, and India. While it’s probably unrealistic to think that Etsy can capture all of this opportunity, it still shows that the end market is huge. To me, this still shows great potential for future growth.
If Etsy is on your watch list, the three facts outlined here can help you make a better decision about the stock.
Should you invest $1,000 in Etsy right now?
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Neil Patel has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon, Etsy, Target, and Walmart. The Motley Fool recommends his eBay and recommends the following options: His April 2024 $45 short call on eBay. The Motley Fool has a disclosure policy.
3 Facts You Should Know About Etsy Before Buying Stock Originally published by The Motley Fool
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