Etsy Inc: Why ETSY Stock Is Heading Vertical

ETSY StockEtsy Inc (NASDAQ:ETSY) stock went public in April 2015, but its shares never quite found their footing since the stock’s strong debut.

However, new corporate developments within the handcrafted marketplace service are pointing to a more aggressively muscular entity in the e-commerce environment. But can ETSY stock gain the same level of power that the company is seeking to achieve?

Call it Etsy Stock 2.0

When ETSY stock first hit the market, it traded at $16.00 and quickly ascended to $35.74. But its ascension was short-lived, and shares hit a nadir in January with a dreary $6.04 price. (Source: “Etsy Stock Hits A Buy Point For First Time Since IPO,” Investor’s Business Daily, September 21, 2016.)

As this year progressed, it seemed that ETSY stock might be showing signs of getting itself out of its prolonged funk. For its second-quarter earnings announced in August, the company earned $85.35 million, which is significantly higher than analysts’ expectations of $80.55 million. And although Etsy stock had a negative return on equity of 3.08%, and a negative net margin of 5.37%, its revenue for the quarter was up 38.9% compared to the same quarter last year. (Source: “Etsy Inc. (ETSY) PT Raised to $20.00,” The Cerbat Gem, October 7, 2016.)

This summer saw an expansion of Etsy’s position in the business world. In August, Etsy announced a partnership with Intuit Inc. (NASDAQ:INTU) that gave American and British Etsy sellers access to Intuit’s “QuickBooks Self-Employed” accounting software at a discounted price. Last month, Etsy caught many industry experts by surprise with its acquisition of Blackbird Technologies,  Inc., a privately held machine-learning company that delivers search relevance and recommendations.

And while the terms of the acquisition were not disclosed, the company’s goals were clearly stated. “We already have deep skills machine learning, because it’s really hard to connect 40 million items to 26 million buyers around the globe,” said Etsy CFO Kristina Salen in a CNBC interview.  Salen added, “But this augments our skill set and actually accelerates our progress in search, and we think it is going to drive future growth.” (Source: “Etsy steps into the world of AI with Blackbird acquisition,” CNBC, September 20, 2016)

Also in September, Etsy unveiled a white paper that spelled out the need for a new federal “Flex Portal” that would help members of the so-called “gig economy”—which incorporates many individuals selling handmade merchandise on Etsy—to connect with programs including flexible health and commuter spending accounts.

The white paper advocated a requirement for companies to withhold taxes if a self-employed worker asks for this, as well as a new rule enabling workers to ask companies to withhold additional money and place those funds into a federally operated benefits account. Etsy executives traveled to Capitol Hill to lobby for its ideas, which signals a greater seriousness in bringing political power to its endeavors. (Source: “Etsy Has a Plan to Expand the Social Safety Net for Gig Economy Workers,” Fortune, September 27, 2016.)

Earlier this month, Etsy announced that its marketplace sellers will soon have access to “Google Shopping,” thanks to a new advertising dashboard that will soon be released. “Google Shopping ads will give our sellers a complementary way to target shoppers off of the Etsy marketplace at key moments when they are searching for items on Google,” stated Maxwell Tang, a product manager on Etsy’s seller services team. (Source: “How Etsy Is Leveraging Google Shopping,” Pymnts.com, October 6, 2016)

Also this month, Etsy stock holders were able to breathe a sigh of relief as the first anniversary of “Handmade,” Amazon.com, Inc.’s (NASDAQ:AMZN) attempt to elbow into Etsy’s territory, celebrated its first anniversary with a fizzle rather than a bang. After a year online, Handmade boasted approximately only 500,000 total products, which is far below the millions of listings published on Etsy each month. The fact that many Handmade vendors also keep a presence on Etsy signaled that Amazon was none-too-successful in denting the Etsy brand. (Source: “How Etsy Dodged Destruction at the Hands of Amazon,” Backchannel.com, October 7, 2016.)

A Second Look at ETSY Stock

Despite what appears to be the corporate equivalent of a second wind, there have been mixed views among financial experts on the viability of ETSY stock.

As of October 7, 10 analysts rated Etsy stock with a “hold” rating while five issued a “buy” rating. But for a stock that is 58.14% owned by institutional investors and hedge funds, ETSY stock has its fans among major investment entities. During the first quarter, before Etsy began to show new vitality as an e-commerce titan, shares were being snatched up.

Pacad Investment Ltd purchased a new stake worth $131,000 and Bayesian Capital Management LP purchased a new stake worth $177,000, while JPMorgan Chase & Co. (NYSE:JPM) raised its stake by 42.6% in the same period after purchasing 162,213 shares. State Street Corp (NYSE:STT), and Geode Capital Management, LLC also increased their respective stakes. (Source: The Cerbat Gem, op cit.)

Also highlighting the potential for ETSY stock is Citigroup Inc. (NYSE:C) analyst Mark Kelley, who maintained a “buy” rating while raising the price target from $16.00 to $20.00. “We believe there is still room for numbers to improve and, therefore, think the stock continues to work,” stated Kelley. (Source: “The Next Move For Etsy Investors After The Stock’s Recent Outperformance,” Benzinga, October 7, 2016.)

The Takeaway on Etsy Stock

ETSY shares have increased 58% since July 1, and there is no evidence pointing to a major downturn in the near future. The company’s new vitality appears to be having a positive impact on its reputation, though whether this can influence its reputation in the financial markets remains to be seen.

Still, the continued pessimism by some analysts on ETSY stock is a bit curious. The company clearly appears to be moving in the right direction, and the Blackbird acquisition will certainly contribute to a strong 2017 financial outlook. But for those who prefer a wait-and-see approach, waiting too long may turn out to be a case of misplaced skepticism.