Etsy, Inc. (ETSY) underperformed the S&P 500, seeing a loss of roughly 50% compared to the S&P 500’s loss of around 5% over the past year. Despite market volatility, hedge funds were actively buying Etsy’s shares, and the stock was added to the WhaleWisdom Whale Index 100 on May 17, 2022.
Etsy is an e-commerce company that connects buyers and sellers worldwide through its two-sided online marketplaces. While the company’s initial focus was providing a place for buying and selling handmade and vintage items, its business line has grown to operate in four segments: Etsy, Reverb, Depop, and Elo7. The Etsy marketplace continues to connect artisans and entrepreneurs with consumers, and Etsy acquired Elo7 in 2021 to help expand its reach; Elo7 is a popular Brazilian marketplace specializing in handmade items and custom made-to-order merchandise. The company also offers a Reverb marketplace exclusively focused on musical instruments and Depop, a fashion resale marketplace. Etsy’s marketplaces experienced a surge in popularity at the onset of the Coronavirus pandemic with handmade and customized products such as face masks, mask storage solutions, and other pandemic-associated accessories. Though the pandemic helped accelerate the trend of online shopping, as the world journeys beyond the pandemic and inflation rise, e-commerce businesses like Etsy have experienced a slowdown in sales.
Hedge Funds and Institutions Are Active
Etsy received positive attention from hedge funds and institutions in the first quarter. Hedge funds increased their aggregate 13F shares to approximately 30.3 million from about 22.8 million, a change of roughly 32.6%. Of hedge funds, 33 created new positions, 72 added to an existing position, 43 closed out their holdings, and 49 exited. Institutions increased their aggregate holdings by roughly 4.4% to about 119.2 million from 114.2 million. The long-term 13F metrics between 2016 and 2022 suggest that Etsy’s upward trend has plateaued.
Encouraging Multi-year Estimates
Analysts expect to see earnings rise, with increases in growth that could bring earnings to $4.24 per share by December 2023, up from an estimated $3.75 for 2022. Year-over-year estimated increases could also bring revenue to about $2.8 billion by 2023, up from a predicted $2.5 billion in 2022.
Favorable Price Targets
Analysts appeared encouraged by second quarter (Q2) results and raised price targets. Etsy’s gross merchandise sales reached the $3 billion mark expected by Wall Street, and the e-commerce company reported about 6 million new buyers. Analyst Seth Sigman of Guggenheim Securities was optimistic following Q2 results and Q3 guidance and raised the firm’s price target on Etsy to $105 from $101, keeping a Buy rating on shares. Rick Patel of Raymond James Equity Research and Jason Helfstein of Oppenheimer & Co. maintained Outperform ratings on Etsy’s shares. Patel raised the firm’s price target to $115 from $100 and shared that projected growth rates for Etsy support signs of stabilization. Helfstein raised the firm’s price target to $127 from $120, noting increased buyer frequency and Etsy’s improved efficiency over marketplace searches and marketing. BTIG, LLC analyst Marvin Fong kept a Buy rating on Etsy and raised the firm’s price target to $122 from 105.
Optimistic Long-term Outlook
Etsy has favorable earnings and revenue estimates from analysts through 2023. While Etsy’s stock price fluctuated in 2022, hedge funds bought the stock amidst a volatile market. Analysts are optimistic about e-commerce revenue and raised price targets. Etsy may be a good buying opportunity for long-term investors.