Etsy (ETSY -3%) is showing particular weakness on the final trading day of 2022 as shares head toward their 50-day moving average of $117.03. The e-commerce platform focused on handmade items endured a challenging year as pandemic-related tailwinds dwindled and inflationary pressures took hold. However, since ETSY posted solid and steady performance in Q3 in early November, the stock has climbed over 35%, underscoring healthy momentum as 2023 approaches.
- ETSY’s major advantage when stacked against competitors like Amazon Handmade (AMZN) is its massive number of unique visitors, which stood over 200 mln earlier this month. Although sellers tend to sell across multiple sites, including their own, ETSY remains a staple for these sellers as over 80% of the company’s sales are derived organically. This underscores the benefits sellers receive by listing their items on ETSY, which we do not expect to tail off anytime soon
- Buyers are also flocking to ETSY more often than before the pandemic. Most of the company’s buyers purchased an item roughly once a year, with 40% buying two or more things annually before the pandemic. Fast-forward to the present day, repeat buyers are up to half of all ETSY shoppers, with average annual purchases of up to five.
These positive developments are certainly encouraging heading into a year where interest rates will continue to climb, and inflation could remain at elevated levels. Still, it is worth employing a healthy dose of caution when viewing ETSY as a possible turnaround play. Valuations will carry significant weight in 2023, and ETSY still trades at a relative premium of ~32x forward earnings. Its reach outside the U.S. may also pose some challenges, especially in Europe, where macroeconomic conditions are relatively worse.
