The global e-commerce market has been on a steady growth trajectory. The COVID-19 pandemic has further accelerated the adoption of online shopping. Data from eMarketer indicates that global retail e-commerce sales are likely to increase from $4.2 trillion in 2020, to $7.4 trillion in 2025.
With positive tailwinds for the industry, there are several attractive investment options. Amazon (NASDAQ:AMZN) is a quality name among large companies. At this point in time, Alibaba (NYSE:BABA) seems like a contrarian play.
Among emerging names, Etsy (NASDAQ:ETSY) stock is attractive. The company is on a high-growth trajectory. I am bullish on ETSY stock, which has already trended higher by 96% in the past 12 months. (See Etsy stock charts on TipRanks)
Strong Growth Across Key Metrics
Etsy has been reporting strong quarterly numbers. As the overall financial profile improves, ETSY stock is likely to remain in an uptrend.
For the first half of 2021, the company reported revenue of $1.1 billion. On a year-over-year basis, revenue increased by 64.4%. Further, adjusted EBITDA for the same period expanded by 57.3% to $323.5 million.
The company’s growth is more attractive than what the headline numbers suggest. As of June 2021, the company reported active sellers of 5.2 million and 90.5 million active buyers. Both metrics increased by over 50% on a year-over-year basis.
It’s also worth noting that for Q2 2021, the company’s Services revenue growth was 38% on a year-over-year basis. This segment contributes to 25% of total revenue, but can be a growth driver in the coming years. In particular, advertising revenue growth is likely to accelerate as the active buyers and sellers increase.
Asset-Light Model
Etsy has an asset-light business model, and this makes the company a potential cash flow machine. It’s worth noting that for the first six months of Fiscal Year 2021, Etsy reported operating cash flow of $270.1 million. Considering the business growth, the company is well positioned for annualized cash flows in excess of $1 billion over the next few years.
It’s also worth noting that as of Q2 2021, the company reported cash and equivalents of $2.1 billion. With growing cash flows, and a strong cash buffer, the company is positioned for robust organic and acquisition-driven growth.
Etsy has already been on an expansion spree. As an example, elo7 is focused on Brazil. The company believes that the Latin American e-commerce market is expected to grow from $50 billion in 2019, to $160 billion in 2025.
Similarly, the company’s Depop brand is focused on apparels, with Reverb providing expansion in musical instruments. With an umbrella of sub-brands, the company is positioned for sustained growth.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, ETSY stock comes in as a Strong Buy, with 10 Buys, and two Holds assigned in the past three months.
The average Etsy price target is $211.33 per share, implying 2.5% downside potential from current levels.
Concluding Views
ETSY stock may have soared over the past 12 months, but there seems to be further upside potential, as the core business delivers strong numbers.
Etsy also has a healthy cash buffer, and is consistently delivering positive free cash flows. This will allow the company to further expand its umbrella of sub-brands with a focus on geographies, and specific online segments.
Considering the global growth in the e-commerce industry, and the company’s cash flow potential, ETSY stock looks attractive.
Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article
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