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Etsy vs. eBay: Which E-Commerce Stock is a Better Buy?

Today I'll analyze and compare Etsy (ETSY) and eBay (EBAY) to determine which e-commerce stock is a better buy.

The e-commerce industry benefited significantly from the COVID-19 pandemic. Many people around the world switched to online shopping, versus going to traditional brick-and-mortar stores.  And this growth is expected to continue in the coming years.

It’s estimated that the global e-commerce industry is estimated to grow at a CAGR of 29% between 2021 and 2025, reaching $10.87 trillion in the terminal year. 

Today I will analyze and compare two e-commerce stocks, Etsy, Inc. (ETSY) and eBay Inc. (EBAY), to determine which is currently the better buy. Both companies operate online marketplace platforms that connect buyers and sellers. Over the past six months, shares of ETSY have plunged 25%, while EBAY stock has fallen about 20%.

Recent Developments 

On January 20th, Jefferies analyst John Colantuoni decreased its price target on Etsy from $275 to $240 amid unfavorable market sentiment for growth stocks. Although valuation concerns remain, the analyst kept their "Buy" rating on the company, arguing the 47% drop from November highs presents a “compelling buying opportunity.” Moreover, the firm notes that Etsy's core valuation is presently 20% below the historical average, implying an upside opportunity ahead. 

On December 15th, Doug Anmuth, an analyst from JP Morgan, picked up coverage of eBay with a "Neutral" rating. The analyst said the company made efficient steps to simplify its portfolio and improve its margins profile, but its product innovation efforts remain in the early days. The firm established a $70 price target for eBay. 

Financial Overview & Analysts Estimates 

In the third quarter, ended September 30th, 2021, Etsy's total revenue grew 17.9% year-over-year to $532.43 million, beating Wall Street expectations by $13.29 million. Its marketplace revenue, which accounted for 74.3% of total sales in Q3, rose 15.8% year-over-year to $395.50 million, while services revenue grew 24.64% year-over-year to $136.93 million. 

Etsy's consolidated gross merchandise sales (“GMS”) was up 17.9% year-over-year to $3.1 billion, while marketplace GMS increased 12.4% YoY to $2.7 billion. The company’s net income stood at $89.9 million compared to its 3Q2020 figure of $91.8 million. However, its GAAP EPS came in at $0.62, beating analysts’ estimates by $0.07.

The company’s EPS is expected to decrease 18.10% year-over-year to $0.94 in its fourth quarter of 2021. However, analysts expect ETSY’s revenue to rise 10.88% year-over-year to $684.51 million in the current quarter.

In Q3, eBay's revenue increased 10.6% on a year-over-year basis to $2.5 billion. This revenue growth was driven mainly by higher net transaction revenues, which assisted the company in beating Wall Street's revenue consensus by $40 million. 

The company’s net income stood at $264 million, significantly down from its year-ago value of $664 million. eBay reported a Non-GAAP EPS of $0.90, topping Wall Street estimates by $0.02. Its gross merchandise volume has been reported at $19.5 billion, representing a decrease of 10% on an as-reported basis and a 12% decrease on an FX-Neutral basis. Besides, the stock's current annualized dividend rate is $0.72 per share, which translates to a dividend yield of 1.21% as of January 26th.

Currently, Wall Street expects EBAY's EPS to increase 15.75% year-over-year in the fourth quarter to $1.00. However, analysts expect that its fourth-quarter revenue should decrease 9.06% YoY to $2.61 billion. 

Comparative Valuation

In terms of Forward P/E, ETSY is currently trading at 41.97x, which is higher than EBAY, whose multiple is currently standing at 15.14x. However, both companies trade with a premium compared to the sector's median threshold of 13.59x. 

When it comes to the Forward EV/EBITDA multiple, ETSY's EV/EBITDA multiple of 30.42x is about 276.5% higher than EBAY's 8.08x. 

Despite relatively a high valuation, ETSY is projected to demonstrate higher forward revenue and EBITDA growth rates of 50.00% and 61.53%, respectively. These growth numbers compare favorably with the respective EBAY figures of 0.47% and 3.55%.  

The Bottom Line 

I believe that ETSY is a better investment than EBAY at current levels. EBAY’s top line heavily depends on the transactions revenues. Hence, with the customers’ outflow from the e-commerce purchasing amid the world’s recovery, the company may see a further deceleration in its top-line growth. On the other hand, Etsy’s smaller size and diversified revenue structure should help it to deliver better results. Moreover, its recent quarterly report and growth prospects look better.

ETSY shares were trading at $148.30 per share on Wednesday morning, up $3.17 (+2.18%). Year-to-date, ETSY has declined -32.26%, versus a -7.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.


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