The Monthly Gems by Allan TongEtsy Inc.ETSYTOP PICKJul 02, 2021

Are profitable and trade cheaply at 14x PE.  Could do better, but not bad.

They face execution problems, but there's a core belief that there is a lot of value in the company. Hold, though buy if this retraces lows.

Its 4Q gross merchandise sales (GMS) and 1Q outlook trailed consensus on continued weakness in discretionary consumer spending. A higher take rate of 22.8% on ads strength did aid sales. A renewed focus on differentiation, gifting and personalization, along with greater mobile app use, may spur GMS longer term, with both gifting and personalization GMS growth outperforming. Depop's (peer to peer shopping) GMS surged 32% in 4Q, outpacing recommerce peers. Reverb's GMS fell just 2.6%. Adjusted Ebitda margin rose 140 bps in 4Q to 29.4%, on lower fraud as Etsy works to remove fraudulent sellers.
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Is down 39% this year with a disappointing last quarter, specifically its gross merchandise sales outlook for Q3. 

Don't sell it down here. He has faith that the CEO will lift this company. Mergers and acquisitions may have an effect.

With shares down 50%, this amounts to great value. It's a one of a kind stock. He would hold on.

They reported a record buyer count. They're not growing fast enough to be a growth stock, but not cheap enough to be a value stock, a common problem. All told, they will be one of the top e-commerce platforms survivors that can grow steadily in the future. Trades at a reasonable 27x PE and will grow earnings 15% next year (predicted). We face market weakness ahead, so buy this on the way down.

ETSY was under pressure recently after the earning release and is now trading at 17x times' Forward P/E. In the 2Q, ETSY’s revenue grew 7.5% to $629M, beating estimates of $617M and EPS was $1.47 beating estimates of $0.90. The balance sheet has a net debt of $1.3B and net debt/EBITDA is around 3.0x, the balance sheet is quite leveraged here. In addition, there was an asset impairment charge of around $68M in the quarter, and operating expenses grew faster than revenue at around 28%, weak guidance, and management expected growth in the next quarter in the mid-single-digit range. However, based on consensus estimates, sales are expected to grow by 10% - 12% over the next few years, so still a healthy runway for growth. Overall, the quarter is not impressive. Although the drop in share price makes sense due to the short-term headwinds, we would be comfortable holding the name given ETSY is repurchasing shares aggressively.
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