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There’s no denying that the recent economic malaise has been a challenge for e-commerce company Etsy (ETSY -3. 59%). While earnings were up 7% year-over-year in the third quarter, gross product volume was up just 1%. And without favorable exchange rates, the artisanal platform’s sales would necessarily have been stable.
As the quarter’s effects end a brief streak of deteriorating numbers, CEO Josh Silverman admitted, “We’re operating in a challenging environment in terms of discretionary customer finishing. “
Still, the economy looks getting healthier. Data from the U. S. Department of Commerce U. S. data reports indicate that the country’s gross domestic product grew by 5. 2% in the third quarter, leading to a 4. 3% increase in corporate profits. Inflation is also stabilizing, which not only makes additional interest rate hikes unnecessary, but also possibly even opens the door to rate cuts. The unemployment rate is also still quite low.
All of this bodes well for stocks, paving the way for a new bull market in 2024. In fact, such a bull market may already be underway. And that’s good news for Etsy.
As noted, inflation-weary consumers are cutting back on discretionary spending to pay for expensive commodities like food, utilities, and toiletries.
However, it is a pendulum that swings in any direction. If a weak economy is bad for business and a malfunctioning market drags down Etsy’s stock, a developing economy and an emerging market have the opposite effect. Assuming a new bull market is anchored in the same old cases of physically powerful economic growth, strong wages, and moderate inflation, Etsy will operate in an ideal client environment.
It can also be argued that many of the recent budget adjustments are the result of the so-called “wealth effect” (or lack thereof) of the stock market. In other words, when the market is doing well, consumers feel wealthier and willing to spend more money on fewer products, such as homemade pieces presented through Etsy.
Mass produced products still have a position in the customer market. From vacuum cleaners and packaged foods to soft light bulbs and athletic socks, there are some products that don’t lend themselves to being homemade.
However, many consumers still love the uniqueness and customization that only a homemade item offers, such as those sold through Etsy. Technavio’s market research estimates that the U. S. handicrafts market is expected to grow in the largest market. The U. S. is expected to grow at an average annual rate of about 9% through 2027, while the global handicrafts market is expected to grow by more than 13% through 2025.
Customers of this latest growth are particularly interested since almost a portion of Etsy’s business takes place outside of the United States. To be clear, there is competition on this front. Amazon has a platform for crafts and the arts and crafts chain Michael’s is coming. create an online rival page called Makerposition. And those are just a few examples.
However, being the first big call to dedicate itself to the craft market gives Etsy a great advantage. As Morningstar analyst Sean Dunlop notes about the company: “Etsy is one of the few corporations poised to be a long-term winner in e-commerce. . advantage of a network that is becoming more and more valuable as new buyers and distributors sign up on the platform.
He adds: “After more than doubling its customer base in 2019, Etsy has most likely reached an inflection point in demand, increasing the barriers to good luck for new entrants. »
Last but not least, take a stand on Etsy’s inventory in anticipation of a new bull market, as many of its recent review efforts are just beginning to gain traction.
Take for example its search function. At some point, a broad search on the site would have turned up too many similar products and not enough other effects for a buyer to narrow their search or browse the platform’s listings. No more. A search through the site’s listings is now a much more organized experience thanks to the changes that have been made since last quarter.
This move is expected to solve one of the company’s main problems, Neil Saunders, retail analyst at GlobalData. He explains, “Etsy doesn’t help itself because the site can look cluttered and confusing to buyers, hurting conversion and weakening the average. “basket sizes. Right now it turns out that there are too many products to sort, which is unpleasant. “
And that’s just one measure. The company is also refining its promotional coupon program, launching its internal payment platform in more countries, fostering more celebrity marketing partnerships, and much more.
So if the long run is so bright, why are analysts so excited?Most only rate the stock as Hold, while the consensus price target stands at $74. 03, down 5% from the stock’s current value. It’s not really inspiring.
Don’t read too much about this boring vision. Many analysts may be waiting for more members of the analyst network to be more bullish on the stock so they can safely move in this direction. In fact, it’s this lack of optimism among analysts that leaves stocks poised to rebound following long-term upward revisions and elevated price targets.
Although the analyst network is never fully supportive of the company, a new bull market and just a little bit of new expansion can do wonders for Etsy stock.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Etsy. The Motley Fool has a disclosure policy.
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