Entering text into the input field will update the search result below

Etsy: An Uncommon Choice For An Inflation Hedge

May 03, 2022 10:28 AM ETEtsy, Inc. (ETSY)BRK.A, BRK.B15 Comments
Vladislav Kolomeets profile picture
Vladislav Kolomeets


  • The company's revenue will grow following the price of goods offered by sellers in the marketplace.
  • Goods on the marketplace have a low price elasticity of demand since handmade items are unique.
  • Etsy has always been highly profitable. Moreover, the potential for growth in margins has not yet been exhausted.
  • Due to the asset-light business model, the company does not need significant capital expenditures even during periods of rapid growth.

Интернет-магазин веб-сайт для ювелирных изделий ручной работы рассматривается на ноутбуке

grinvalds/iStock via Getty Images

Investment Thesis

As the consumer price index rises and the rhetoric of the world's central banks tightens, the question of protecting capital becomes relevant for investors during a period of high inflation. While commodities and real estate are

This article was written by

Vladislav Kolomeets profile picture
It is generally accepted that the increase in the number of securities in the portfolio certainly leads to a decrease in the total investment risk. This statement, originated in academia, is built on two important assumptions: investment opportunities must have the same mathematical expectation (range of all possible relative outcomes including negative, taking into account the probability) and not to have cross-correlation (i.e., the movement of some securities should not repeat the movement of others).However, this does not happen in life, and we are forced to work hard to find attractive opportunities for capital investments. Let’s say we have two companies with the same expected return, but one carries a risk of capital loss of 5% (suppose that risk is measured exclusively quantitative indicators, although this is not the case), and the second - 1%. Wider range of expectations of the first company only increases the overall risk portfolio. We prefer to focus on a few companies with high potential growth and near-zero risk of loss invested capital rather than excessive diversification that only reduces profitability and increase the risk. In other words, investment is by no means solving a math exercise. Investment is a gold washing process (it is desirable that the prospector also possessed Picasso's view on everyday things). Another question is where to find gold? If you want to beat the market, you have to look where the other 99% of the market participants do not. We research undercovered stocks from around the world looking for growth, deep value, and distressed companies.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (15)

A consumer very, very discretionary stock. As prices increase, buyer interest drops, disappears or they just keep looking. Most truly original pieces need to be handled to assess workmanship quality and wear. Regular Etsy buyers have become less easily satisfied with sellers' own upbeat comments on condition.
This article is shortsighted.
What "stats" say, and what consumers do, are not always the same.

The problem are seller fees. I have found only 1 article on the entire 'net that has appropriately explained seller fees. Etsy decided to stop paying for advertisement outside of Etsy. When sellers sell to buyers from Etsy's OffSite Advertising, they are then hit with AN ADDITIONAL 12% in fees. When basic fees are 9.5% (which includes processing fees) the additional 12% in fees more than doubles fees for sellers.

Here lies the problem...sellers do not know when these fees will hit until AFTER a sale. With that, sellers have made huge increases in price points. As a jeweler on Etsy, I've noticed that many sellers are becoming priced out of their markets.

Also to note...latest data says that consumers are spending more at shopping malls than on online shopping. ONLINE SHOPPING IS NO LONGER A CHEAP WAY OF BUYING PRODUCTS. Consumers are now saying that they want to touch and feel the product they are buying. Brick-n-Mortar is, once again, a competitor to e-commerce.

And about shipping costs...For a piece of jewelry priced at $300, it now costs me over $17.00 to ship cross country which includes insurance. This price gets passed down to the buyer.

So the real question...How long will the consumer continue to purchase online as product prices become too expensive? If sellers do not make a profit they will leave. If sellers price themselves out of the market, they will leave.

Sellers compete with everyone....If a buyer comes to my shop and contemplates a necklace purchase at $300, they may decide the better deal is for patio furniture at Home Depot.

Online has gotten too expensive for both sellers and consumers. And "NO" handmade items are not always unique as this article says. Most items on Etsy are just typical.
@Stone Cutter Excellent thoughts. Thanks for explaining everything.
Nimble Investor profile picture
@Noah Riley @Kolomeets Investments any thoughts on earnings today? thanks.
Noah Riley profile picture
@Nimble Investor not really surprised by the lower guidance in all honesty. Taking the long-term view for the recovery thesis to play out. Current conditions aren't too kind and it will take time.
Vladislav Kolomeets profile picture
@Nimble Investor Growth has slowed down a lot. I'm waiting for Wall Street to cut its forecasts as the current consensus is quite bold. It could put pressure on stocks in the short/medium term. However, in my opinion, the price is too low, and the margin of safety is solid.
Nimble Investor profile picture
@Kolomeets Investments But aren't the comps really really tough from Q1 2021 which was blistering/covid pull forward related? Do you see fundamental weakness in business?
Noah Riley profile picture
Great article, completely agree. Recently pitched it to my university fund on the premise that it is actually resilient to inflation and is therefore mispriced by the market. Tech has pretty much traded inline for the last two years, when Etsy won, so did its peers. I believe a tech divergence is coming and Etsy will be on the right end of it for many of the reasons you outlined. Another factor I think is worth mentioning is due to the marketplace structure, wage inflation shouldn't affect Etsy as much as the likes of Amazon with huge fulfillment centres and large workforces. Etsy has also shown its ability to pass inflation onto consumers through its fee increase.
Vladislav Kolomeets profile picture
@Noah Riley Thanks! Agree with every point.
@Noah Riley

You say...."Another factor I think is worth mentioning is due to the marketplace structure, wage inflation shouldn't affect Etsy as much as the likes of Amazon with huge fulfillment centres and large workforces."

Not necessarily true. I notice you live in the UK. Here in the U.S. low unemployment is creating demand for workers. And those workers are now making more money, as companies are increasing wages for employees so that employees won't leave. Particularly in engineering...wages continue to increase. I'm a retired Software Engineer. Etsy has engineering teams everywhere.

Also reported from Etsy during their latest earnings call, Etsy is on a hiring spree...And later reports say that the newly hired employees definitely cut into Etsy's profit margins.

“We invested more than $100 million USD in our Trust & Safety and Member Support teams and hired enough people to increase team headcount by 35%.”
Orangejulius profile picture
I'm not usually crazy about these types of growth companies, but ETSY indeed looks like it has fallen into a very reasonable range, about 20x OCF. It hasn't been down to this level except in 2/2016 and 3/2020. It's well worth a gamble here.
Nimble Investor profile picture
Nice article and I have similar thesis. been buying in chunks in low 90s past two days.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.