Is Etsy Stock Still on Track for Monster Growth? - The Motley Fool

Summary

Online marketplace for craft and vintage goods Etsy (ETSY -0.94%) just reported a not-as-bad-as-expected second quarter of 2022. With the consumer under pressure because of rising inflation in energy and food, discretionary spending has been taking a hit. Etsy's revenue grew 11% year over year anyway, primarily helped by an increase in its take-rate from merchant sales.

Last summer, Etsy made two acquisitions: fashion selling site Depop and the "Etsy of Brazil," Elo7. It seems the bet that these two marketplaces would help fuel further growth hasn't paid off so far. Are Etsy's days of fast expansion finished?

Online marketplace for craft and vintage goods Etsy (ETSY -0.94%) just reported a not-as-bad-as-expected second quarter of 2022. With the consumer under pressure because of rising inflation in energy and food, discretionary spending has been taking a hit. Etsy's revenue grew 11% year over year anyway, primarily helped by an increase in its take-rate from merchant sales.

Last summer, Etsy made two acquisitions: fashion selling site Depop and the "Etsy of Brazil," Elo7. It seems the bet that these two marketplaces would help fuel further growth hasn't paid off so far. Are Etsy's days of fast expansion finished?

Were Depop and Elo7 a total waste?

Etsy said it had 7.4 million active sellers and 93.9 million active buyers across its various marketplaces at the end of June 2022. Of the total, the company said its core Etsy.com marketplace had 5.3 million and 88.1 million active sellers and buyers, respectively. That leaves 2.1 million active sellers and 5.1 million active buyers for the other sites, including the music equipment marketplace Reverb as well as Depop and Elo7.

By comparison, Etsy reported nearly 7.7 million active sellers and 95.1 million active buyers during the first quarter of 2022. Clearly, inflation has been impacting the e-commerce company just as it has other retailers as consumers tap the brakes a bit. Reverb, Depop, and Elo7's combined sellers and buyers totaled about 2.1 million and 6. million, respectively. That implies a drop-off of nearly one million active buyers over the past three months.

No doubt, worsening economic conditions are primarily to blame, but it's troublesome given that Etsy just acquired Depop and Elo7 a year ago. It paid $1.625 billion in cash for Depop and $217 million for Elo7, premium price tags that assumed these two new e-commerce offerings would fuel more growth for Etsy overall. Thus far, it appears that hasn't panned out since most of the revenue growth in Q2 came from the take-rate increase when merchants make a sale.

A metric to keep an eye on

I was an optimistic Etsy shareholder when the company acquired Depop and Elo7, but the economy of 2022 has me second- guessing that view. Etsy racked up quite a bit in goodwill (in simple terms, the amount paid in excess of a company's value to acquire it) for these takeovers. Etsy reported $1.1 billion in goodwill for Depop and $157 million for Elo7 in its second-quarter SEC filing. If economic weakness continues and these two acquisitions don't help Etsy grow, it could eventually realize impairment charges on this goodwill -- essentially, a non-tax-deductible expense that amounts to an admission it overpaid.

After the latest update, Etsy stock is trading for 25 times trailing 12-month free cash flow. It also had $1.01 billion in cash and short-term investments on balance, though that was offset by $2.28 billion in debt. Not exactly the debt-heavy balance sheet I like to see, especially if some of that debt taken on (in this case, purchasing Depop and Elo7) may not be generating the type of growth and profitable returns at first expected. Suffice to say I'm keeping a close eye on seller and buyer totals in the coming quarters to see if the situation changes.

I'm ultimately giving Etsy a pass here because I think it's worth being patient before jumping the gun and selling. This is still a highly profitable e-commerce company. Plus, it's not like Etsy is alone. As already mentioned, lots of retail-centric businesses are feeling the hurt right now because of inflation and how it's affecting consumer spending habits. Consumers could make a comeback later this year or next, so all is not lost.

Nevertheless, after riding Etsy higher for several years (before and during the early stages of the pandemic), I'm doubtful this will be a high-growth business ever again.

Is Etsy Stock Still on Track for Monster Growth? - The Motley Fool
Photo Credit: The Motley Fool

Clinton's Morrill turns flowers into keepsake jewelry with Beads of Hope - Worcester Telegram

CLINTON - For Bethany Morrill, being creative and creating jewelry is nothing new. The Boylston native who moved to Clinton three years ago has been doing it since middle school. …

Read more here
Clinton's Morrill turns flowers into keepsake jewelry with Beads of Hope - Worcester Telegram

62 Best Gifts Under $100 in 2022 - Affordable Holiday Gift Ideas - Woman's Day

There are so many ways to go about gift shopping, but the reality for most people is that price often plays a major factor in what you ultimately purchase. As much as you would lov …

Read more here
62 Best Gifts Under $100 in 2022 - Affordable Holiday Gift Ideas - Woman's Day

Where to Sell Yugioh Cards (16 Best Places in 2022) - Don't Work Another Day

Yu-Gi-Oh is one of the most popular trading card games of all time, and nowadays some ultra rare cards can sell for tens of thousands of dollars. Recognizing an opportunity to mak …

Read more here
Where to Sell Yugioh Cards (16 Best Places in 2022) - Don't Work Another Day

For Etsy, Inc. (NASDAQ:ETSY) insiders, selling US$6.7m worth of stock earlier this year was a smart move. - Nasdaq

Last week, Etsy, Inc.'s (NASDAQ:ETSY) stock jumped 11%, but insiders who sold US$6.7m worth of stock in over the past year are likely to be in a better position. Selling at an aver …

Read more here
For Etsy, Inc. (NASDAQ:ETSY) insiders, selling US$6.7m worth of stock earlier this year was a smart move. - Nasdaq

Etsy to Promote Labor Day Sales on Mobile Only - EcommerceBytes

Etsy invited sellers to mark down prices in order to get visibility in its annual Labor Day sales event, but this year, Etsy is marketing the event only to shoppers on the Etsy mob …

Read more here
Etsy to Promote Labor Day Sales on Mobile Only - EcommerceBytes