Down 48% this year, where will Etsy be in 2030?

Etsy (NASDAQ: ETSY) released second quarter results on July 27 that pleasantly surprised investors. The strong performance even came amid an unfavorable economic environment for e-commerce businesses. Between record inflation, rising interest rates, and an economy reopening, online shopping platforms have recently come under pressure from multiple directions.

Even after a 24% rally last month, Etsy’s stock is still down 48% year-to-date. With the global e-commerce market expected to grow at a compound annual growth rate (CAGR) of 15.1% from 2021 to 2030, consider where Etsy could be by the end of the decade.

Image source: Getty Images.

Where is Etsy today?

Etsy is an e-commerce marketplace where consumers can find handmade creations, vintage items, and unique products. According to the company, its total addressable market for what it calls “specialty” goods is $100 billion, meaning it has only captured about 2% of the revenue potential from its fiscal year 2021. In its final quarter, the company’s total revenue increased 10.6% year-over-year to $585.1 million, and its diluted earnings per share increased fell 25% to $0.51, but beating analysts’ expectations of 65%.

Gross merchandise sales (GMS), which refers to the total value of merchandise sold on the platform, fell 0.4% to $3 billion, while active buyers and sellers increased by 3. 8% and 41.5% to reach 93,947 and 7,403, respectively. Although growth has temporarily dampened, Etsy’s performance in the second quarter showed that its business is stable and that consumers will continue to use the platform even in a declining market. And given that the business is already profitable, investors should be excited about the untapped potential of Etsy’s business going forward.

Where could Etsy be tomorrow?

Suppose Etsy expands its sales at a CAGR of just 10% from 2021 to 2030, bringing its annual sales to around $6 billion. Assuming an earnings before interest, tax, depreciation, and amortization (EBITDA) margin of 25%, which is slightly higher than last year’s measure, the company would generate about $1.5 billion in EBITDA. With an enterprise value to EBITDA multiple of 25, which is below its five-year average of 58.4 but above S&P500average of 17.1, the company’s enterprise value would be $37.5 billion in 2030, up 154% from today.

I think these are realistic—perhaps conservative—estimates of where the e-commerce platform might be at the end of the decade. Not only is it possible that Etsy could grow revenue at a faster rate, but I also think the company’s operating margins could be higher by then. Either way, it’s clear that the stock’s latest selloff is giving investors a superb margin of safety right now.

Should Investors Buy Etsy Stock Now?

Given the niche market in which it operates, Etsy is well positioned to maintain solid growth in the years to come. Similarly, the company’s pullback so far in 2022 provides investors with a great window of opportunity to buy e-commerce stocks at an attractive price. As the move to mobile shopping continues to progress, investors will still have to distinguish between secular winners and losers. There’s no need to worry about Etsy, though – I think the company will end up being one of the biggest success stories in the e-commerce industry going forward.

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Luke Meindl has no position in the stocks mentioned. The Motley Fool holds jobs and recommends Etsy. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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