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Etsy: The Pandemic Pivot that Boosted Stock Prices
With many small businesses grinding to a halt and closing during the course of the pandemic, consumers are looking to support the small businesses that are still standing.
At the start of the pandemic, it seemed that big companies like Microsoft, Apple, and Amazon would be the only ones to come out on top. This assumption was not entirely off-base; in October, Apple hit a $2 trillion market cap. However, as the pandemic has continued, there has been a push to refocus spending power on small businesses. This has led to a sharp lift in Etsy’s stock.
Etsy: Your Place to Increase Your Dividends
With many small businesses grinding to a halt and closing during the course of the pandemic, consumers are looking to support the small businesses that are still standing. While there are other platforms for small businesses to sell their wares online, such as Shopify and TicTail, none are as well known as Etsy.
Etsy went public in April of 2015 with its initial public offering at $16 a share. It saw an initial lift within the first few days of its going public. However, this lift did not sustain, and the price of the stock declined steadily for nearly a year (Motley Fool actually named it the worst IPO of 2015!). Etsy’s share price remained on the low end until the end of 2017, ranging from $6.73 to the original price of its IPO. The stock began to gain traction again in early 2018, and this continued through 2019.
Like many other stocks, the share price took a 40% dip (from $57.92 to $34.66) in March of 2020, when COVID-19 restrictions were announced. However, unlike other stocks and industries, such as travel and the service industry, which have been slowly working back toward their share prices before this crash, Etsy’s stock managed to bounce back within a month of that initial drop. The share cost has continued to rise, with a few dips here and there. Compared to its lowest point in March of 2020, Etsy’s share price has risen 334% (from $34.66 to $150.67 in October of 2020).
Increased Buying, Increased Selling
Nationally, 5.5% of all retail businesses and 20.6% of all leisure and hospitality businesses have taken a hit as a result of COVID-19. Some businesses have pivoted to selling online; some bars and restaurants have opened up online order forms for food and alcohol for both at-home and to-go delivery. Some smaller retailers moved to platforms such as Etsy.
According to the company’s first quarter results, Etsy saw a 26% lift in active sellers and a 16% rise in active buyers. The company also shifted its ad strategy to help sellers affected by COVID-19. This included a one-month grace period for sellers’ bills, and a guide to managing a shop during the pandemic. This guide couldn’t have come at a better time. Etsy’s second quarter results showed a 34% year-over-year lift in Active Sellers; their Active Buyers increased a whopping 40%, from 42.7K to 60.2K.
Not only have people turned to Etsy to sell the products that they could no longer sell in-store; consumers have moved to shopping for the products on Etsy. This increase in activity coincides with the bouncing back and steady rise of Etsy’s stock. While consumers did still turn to big-box retailers like Walmart and Amazon for essentials like antibacterial spray and toilet paper, they turned to Etsy for much more personal gifts and protective gear such as masks.
If you were to search COVID masks on Etsy, you’d receive over 117,000 results; that’s enough masks to cover the New York University student body twice over. However, despite this increase in product, the increase in buying on Etsy is not limited to people looking for masks with cute patterns (though that sales rate accounts for 14% of all growth). According to their Q2 2020 report, overall sales have increased 93%, with an overall $1 billion revenue growth. The primary driver of this revenue growth was homewares and home furnishings, which saw a 128% increase; apparently when people are stuck at home, they get the urge to decorate – who knew?
This increase in buying has not slowed down even as states have reopened; Etsy saw a 15% increase in buyers and a 17% increase in sellers from Q2 to Q3 of this year. Not only are buyers increasing in volume, but they’re increasing in frequency. According to Etsy’s Q3 report, “a buyer in the second quarter of 2020, whose first purchase was not a face mask, spent 50% more in their subsequent purchases in the first 90 days on Etsy than a new buyer in the second quarter of 2019”.
Home for the Haul-idays
With this increase in buying and selling on Etsy throughout 2020, it’s unlikely that this trend will see a dip in Q4. Companies like Target, Macy’s, and Walmart are already ramping up their Black Friday sales and plan to keep them rolling through Thanksgiving; other companies will likely join this trend of early online sales, as states begin the roll back reopening due to virus surges.
However, as these big box retailers are dropping prices to get people into their online stores, consumers may be looking for more personal touches not only to send to family and friends, but to further improve the coziness of their apartments as they did during the second quarter of this year.
Putting Stock in Etsy’s Future
Etsy’s gross profit margin has seen strong growth throughout the year. Compared to Q3 of 2019, it’s now up 73% year-over-year. They have seen increased operating costs throughout the course of 2020; between moving their operations to a work-from-home setting in Q1, as well as the additional marketing and COVID initiatives that the company has taken on, total operating expenses are up 74% compared to last year. That said, net income per share is up 211%.
While Etsy’s increased popularity may seem to be a flash in the pan as a result of COVID, it may endure as small business owners are challenged with states constantly reopening and reclosing store fronts. It likely won’t hit an Apple-like market cap any time soon, but the stock has come a long way since its IPO in 2015.
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