Angelic ETSY. Think Creatively.

Each

passing day seems to say that the old bull’s dead–probably. The rocket-fueled momentum that once ruled, now looks like a greasy pool.  Amazon’s glory now reads in at a sickening single year 9.8% poke. Who calls that growth? For god’s sake, a four year old can run faster than that. So now Bezos is taking pictures and the market’s standing still–like a picture. But wait.  Is ETSY a good stock?

 

Etsy’s here. “Hand-made goods” you ask?  Zip-tied twigs and finger paint?  Hold up.  Who’s growing their revenue at 42% 5 year annualized? No one? Wrong–almost no one. Who has a 69% gross margin? Hum hum. Who keeps laughing at the consensus estimates–and then beating them like a blind goat?  Right. 

 

eTSEY.com owns the handmade goods marketplace.  Etsy reports on Monday. Last November they reported their Q3. They monkey-stomped the estimate by 110%.  D’ya see their 6.86% move yesterday? Well, that terra-stomping move was in anticipation of Monday’s Q4 report, and perhaps another savage consensus estimate beat-down.

 

People love making things with their hands, as well as making money. We love that. ETSY knows all that, and much more.  Thus they built a place to make creativity pay. It can pay for you too. S&P 500 1 year return 3.28%. ETSY, 1 year share price growth 169.4%. No one’s laughing, except us.

 

 

 

Hand-made

goods?  Zip-tied twigs and finger painting?  Get drunk and fall down instead.  Oops, did you say revenue growth of 41.3% year-over-year, and 13.6% sequentially?  That was last quarter.  Q4 comes out Monday.  Well, they call that “accelerating” growth yo.  Think alcohol-fuel funny car.  Fact.  Almost no one is growing at this rate, not now or normally.

 

While most companies don’t realize the gas is the long slender one on the right, ETSY has it mashed to the floor.  “Notably, the company has surpassed the Zacks Consensus Estimates three of the trailing for quarters, recording average positive surprises of 78.13%.”  Zacks Equity Research, Yahoo Finance, Feb. 20, 2019.

  

Etsy is hand-making growth at an annualized 5-year revenue rate of 42.7%, and cash flow growth of 69.6%.  In stunning contrast, AMZN’s 5-year annualized revenue growth pegs-in at just 25.6%, cash flow at 44.3.  That should turn your promiscuous investing eye.

 

People are naturally creative.  It’s innate.  Most jobs in the American economy are created by small to mid-sized companies.  Business ownership provides precious intangibles to those willing to risk.  Being your own boss is like nothing else–and making it pay is pure magic, and frightfully hard.  No where to look, no where to hide.  But when you win, you win.  Besides, making something with your own hands–that’s special.  Powerful forces lie within each of us.  Etsy knows all of this and provides a place where those very things can happen.

 

 

funny car, black
Fast growth is known as “momentum.” As an investor, once you find it you’ve downed that Kool-Aid. It’s love and it doesn’t fade, even when the bull’s done for now. It is.  Each and every momentum play will eventually slow.  Think Apple(AAPL.)  Like it or not, Apple’s now a value play.  Jim Cramer quite insightfully labels it a “packaged goods” play.   It is.  Is Amazon close?  closer for sure.  The above are hand-made too.  Gallons to the mile.

Etsy

is a smashing story of radiant growth led by snappy thinking.  Amazon lied down an online retail execution model others now aspire to match.  Good luck with that.  Yet, Etsy’s on the way with a host of levers to pull, and an even better model.  AMZN buys, warehouses, inventories, sells, and ships, nearly half of the goods flowing through it’s utterly staggering system.  But like Alibaba and Wayfair, Etsy does not.

 

Etsy is a marketplace and services company.  Again, like Alibaba, it provides the online venue, along with a growing menu of services to support the sellers they host.  From the middle Etsy serves and sells both sides.  That makes both sides, customers.  Brilliant.  Fa King brilliant.  Along with current trends, the company has just launched Etsy-Plus.

 

  Etsy_Plus is a subscription service providing tools for the site’s sellers.  Growth for the service is slow now, but it’s also brand new, representing a potential growing new revenue source for an astute operation.  Plus is just the start of what this busy-bee company is up to.  They stay up late looking at Amazon.

 

ETSY, 2-22-19, prior to pre-market.

Chart, ETSY, 2-22-19
The trend break displayed above was lovingly dished out by politics.  Such “macros” kicked everybody around. Trade wars and shutdowns and the Powell bomb will always do that.  Technicals tells us entrancing short-term stories that sound convincing, at the time. Once the macros move out like some continental shit-storm, the fundamentals begin to drive the truck again. And that’s what long-term investors live for. Think Boeing(BA.) Oops, and ETSY(SJChart.)

  Log on.

Etsy’s a marvel of clarity on its’ conference calls.  No cheesy metric mixing.  No endless question-dodging like Amazon.  They simply lay it all out, and strive to both understand exactly analyst’s questions, and then answer them directly.  Who does that?  Only companies without rows of highly-questionable butt warts.

 

And what are they saying?  CEO Josh Silverman simply states “Our shipping costs for many, if not most, of our sellers’ items are too expensive.”  Silverman employs no dodging or padding.  “Most or our users land directly on a product page, which creates a deed end.”  Point plank.  “We’re working to fix both of those, and working to raise awareness of our growing category offerings.  We’re now offering targeted recommendations on our product pages.”  Nice.

 

“We’re working with sellers and providing them with tools that help.  We’re adjusting search results to highlight our best products, and most successful sellers.  That gets sellers’ attention, as sellers care highly about their search rankings.  We’re linking those rankings to shipping prices, to grow seller awareness of the benefits of bringing those down.  We’re encouraging them to view shipping strictly as a cost of doing business.”  The company’s also now added TV ad campaigning to their growth push.  Nice.

 

 

ETSY, 2-22-19.
Chart, ETSY, 2-22-19, Candles
Sideways movement, with price-action above both rising exponential moving averages(EMAs). Mindsets can persist after conditions change. A fast ten-year bull market is now a stymied slow growth world. Constantly moving in and out of long-term positions is a mistake while bulls run. Now, selling spikes makes sense. Why? Because momentum–think Amazon–doesn’t have any now(SJChart.)

Etsy

is a company hitting it’s stride.  Their head is down and their customers have their ear.  How/  Recently customer service consisted of that clunky old school email circle.  No more.  Customer service is now a real-time affair via phone and live chat.  You want help?  Call or chat-that’s it.

 

Such substantive shifts are indicative of the company’s focus on growth through both customer and seller experience.  Who grows that way to this day?  Right.  Amazon, and now Brooklyn-based Etsy, now with 37 million active buyers and growing.  This is a brand on the make, with a 69% gross margin.

 

The key metric for ETSY is GMS.  On November 6th Etsy recorded a “gross merchandise sales(GMS)” total that matched nine month’s work back in 2017.  That’s right.  Again, they’re now generating in one quarter the same sales as three quarters in ’17.  That’s called rapidly “accelerating sales,” and revenue.  This is a company that now has the money to approve a new $200 million share repurchase program, while continuing to invest in the business.  They also possess the pricing power to institute a 1.5% price increase, without adversely effecting margins.

 

ETSY’s push forward is working.  Unlike many, points for improvement are crystal clear.  Without saying so, the company no doubt is following the brilliance of Amazon’s design, for one.  Smart players steal from everyone and then make it their own.  Anything less would be stupid. 

Q3 marked the 4th straight quarter of continuous GMS growth.  Growth doesn’t descend free from heaven.  Every fundamental metric here is positive, if not shockingly great.  Ignore ridiculous warnings concerning potential margin compression due to on-going investments in the business or promotional spend.  That’s how you build growth–again, think Amazon.  One listen to CEO Josh Silverman and crew will convince you too.  Just listne around the rain of “congrats” from analysts.  

 

 

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Additional resources:

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https://www.schwab.com/public/schwab/client_home
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2 thoughts on “Angelic ETSY. Think Creatively.

    1. The next chapter of the ETSY story is mere hours away. After close Q4 hits the airwaves and we’ll be there. Today is the day to place a 2% trailing stop on our shares. If it spikes, either way, we’re good. We’ll watch, and buy back in lower, if investors over-react to the downside on no actual bad news. That happens routinely. Thanks Fitz–you’re our money nam. Your dad taught you well. Sj

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