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Etsy Inc (NASDAQ:ETSY) Stock: Niche E-Commerce Done Right

Friday, August 7, 2020 | Sean Sechler
Etsy Inc (NASDAQ:ETSY) Stock: Niche E-Commerce Done Right

E-commerce stocks are continuing to deliver for investors banking on a permanent shift in consumer behavior. More people are shopping online than ever before which has helped to accelerate the growth of up-and-coming businesses with digital marketplaces. It’s easy to understand why e-commerce is booming, as it offers convenience and safety for consumers during the pandemic. There is undeniably a lot of competition in the industry, which is why buying a company that targets a specific niche market makes a lot of sense.

One of the big winners of the recent bull run in e-commerce stocks is Etsy Inc (NASDAQ:ETSY), an online e-commerce marketplace that connects buyers with sellers of handcrafted and vintage goods. Although it is smaller a smaller company than e-commerce titans like Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA), Etsy is growing at a rapid pace and it dominates the artist-made and handmade goods market. There are plenty of great reasons to consider buying Etsy stock even though the stock is up over 300% since March. Let’s take a deeper look at this niche e-commerce company below and assess why it is experiencing so much success during the pandemic.

Etsy Helping the Self-Employed & Developing a Strong Brand

Etsy is unique in that it helps self-employed creators of items like handmade crafts and artisan goods to sell their products online. Its business model works because it assists the designers of these items by finding customers all over the world so that they can make a living while also providing one-of-a-kind products to buyers. During a period with a lot of uncertainty in the economy and record unemployment, Etsy offers a unique opportunity for entrepreneurs. Shoppers also get the added satisfaction of helping out small businesses during this trying economic time by shopping on the company’s platform.

Etsy’s management team is executing its vision flawlessly and has worked to develop a strong brand. The company’s mission statement to “Keep Commerce Human” sets Etsy apart from other e-commerce companies and speaks volumes about its values. It seems that Etsy wants to maintain a strong relationship with its seller community which is the backbone of its business, and it waived fees for its new Offsite Ads service and offered a one-month grace period for sellers to pay their bills during the pandemic. These types of initiatives make sense business-wise and continue to improve the image of the company.

Etsy Strong Q2 Earnings and Mask Mania

If you are looking for direct proof that Etsy is benefitting from the pandemic, look no further than its Q2 earnings report. Gross merchandise sales increased substantially year-over-year by 146% and the company saw 18.7 million new buyers during the quarter. The company reported revenue of $428.7 million, up 137% year-over-year, and smashed analyst expectations with $0.75 EPS versus $0.39 expected EPS. Gross profit also increased 159.1% year-over-year while gross margin came in at 74%. These numbers are undoubtedly quite impressive and highlight why investors are confident in the company’s business model going forward.

One of the big drivers of the revenue boost in Q2 was the huge uptick in the demand for facemasks. You have to hand it to Etsy, as the company recognized an opportunity and really capitalized. The company sold over $346 million worth of facemasks in Q2, which accounted for 14% of all sales. The only categories of products that saw more sales in Q2 were housewares and jewelry. While this facemask boost might not be permanent, it’s a testament to Etsy’s ability to pivot and profit from rising market demands when an opportunity presents itself.

Augmented Reality

If the Q2 earnings and strong brand aren’t enough to sell you on Etsy as an investment, how about an innovative new feature that allows customers to view how well its products would look in their homes? Augmented reality is a technology that offers a way to enhance parts of our physical world with computer-generated inputs. Etsy introduced this technology into its mobile application so that shoppers are able to view art on their very own walls.

This type of innovation is enhancing the customer experience and helping to attract high-ticket customers. It’s incredible to think of the potential that Augmented Reality has in the e-commerce space, and the fact that Etsy is already taking advantage of it shows just how forward-thinking the company’s management team is.

Etsy Intriguing E-commerce

Etsy is one of the most intriguing companies in the e-commerce space at this time. As the company continues to carve out its niche and capitalizes on positive market trends, there’s a good chance that long-term shareholders will be rewarded. With that said, the stock is trading down after a great earnings release and probably needs to consolidate for a few weeks after such sharp move up to all-time highs. Etsy looks like a great long-term stock to buy, but be patient until a solid entry presents itself instead of chasing the momentum

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Etsy (ETSY)1.5$113.68-1.2%N/A93.18Buy$128.48
Amazon.com (AMZN)1.7$3,019.79+0.7%N/A116.10Buy$3,358.77
Alibaba Group (BABA)1.8$269.73-1.2%N/A29.07Buy$271.69
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20 High-Yield Dividend Stocks that Could Ruin Your Retirement Portfolio

Almost everyone loves a company that pays strong dividends. Who doesn't like receiving a check every quarter for simply owning a stock--especially if that stock is paying you back 4%, 5% or even 10% of its share price in annual income each year?. In a world where 10-year treasuries are yielding just above 2%, it seems hard to go wrong when buying a stock that's yielding significantly above the going rates on fixed-income assets. Unfortunately, the market rarely offers a free lunch.

While high-yield stocks may have a lot of near-term attractiveness, those same high-yields can often signal significant danger ahead. In some cases, it might mean that the company's dividend will stop growing or won't grow as fast as it used to. Worse yet, the company could cut its dividend, reduce the income you receive from owning the stock and drive down the value of the shares that you own.

4%-plus yields might seem like an easy opportunity to boost the investment income you receive, but high-yield stocks can just as often be a track reading to snare unsuspecting investors. It's not always easy to tell the difference though.

This slideshow highlights 10 high-yield dividend stocks that are paying an unsustainably large percentage of their earnings in the form of a dividend. These companies are all paying out more than 100% of their earnings per share in the form of a dividend, a sign that the advertised high-yield probably won't last.

View the "20 High-Yield Dividend Stocks that Could Ruin Your Retirement Portfolio".

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