“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, July 30, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

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"Trading Capital Management"



Option Trade – Etsy Inc. (NASDAQ:ETSY) Calls

Tuesday, July 31, 2018

** OPTION TRADE: Buy the ETSY SEPT 21 2018 45.000 CALL at approximately $1.50. Place a pre-determined sell at $3.00.

Also include a protective stop loss of $0.60.

Brooklyn, NY-based Etsy Inc. (NASDAQ:ETSY), a commerce platform to make, sell, and buy goods online and offline, primarily in the United States, is expected to boost profitability in its earnings report on August 06, 2018, after the market closes, due to the focus on driving top-line growth and streamlining costs.

As well, the company’s end-customer focus is appreciable. Further, it is helping sellers sell more by pushing products.

The consensus EPS forecast for the quarter is $0.05. The reported EPS for the same quarter last year was $0.10.

Etsy is a stock that has a solid history of beating earnings estimates and is in a good position to maintain the trend in its quarterly report.

This online crafts marketplace has an established record of topping earnings estimates, especially when looking at the previous two reports. The company boasts an average surprise for the past two quarters of 93.75%.

Influencing Factors…..

Over the past 90 days, the Consensus Estimate for ETSY's full-year earnings has moved 45.95% higher. This means that analyst sentiment is stronger and the stock's earnings outlook is improving.

Etsy has returned about 117.31% since the start of the calendar year. Meanwhile, the Computer and Technology sector has returned an average of 10.33% on a year-to-date basis. This means that Etsy is performing better than its sector in terms of year-to-date returns.

Etsy brought in a new executive team after the poor post-IPO showing, and things have been encouraging ever since. By growing gross merchandise sold, focusing the company's scope, and trimming the payrolls, the company has produced results far ahead of what most analysts have expected.

The stock's biggest pop came just in June, when Etsy posted solid revenue growth and announced a new premium tier of subscription membership and -- most importantly -- an increase in fees for items sold on the platform.

The company has been able to accomplish this even with heavy turnover in its base of sellers. Over the last three years, active sellers increased 40%.

The real growth hook has been the Seller Services division that helps vendors manage payments, promote their listings, print shipping labels, and design their websites. Revenue from the program is booming -- up over 200% in the past three years, it accounted for 59% of revenue at the end of 2017.

Before Silverman showed up, Etsy was known for its workplace culture and high employee satisfaction. However, some of the care Etsy took in supporting its workforce came at the cost of productivity. The aforementioned narrowing of project scope when Silverman took the reins was part of Etsy getting back to its championing of its most important customer: the small and home-based businesses that sell crafts on the site.

The rollout of simplified merchant tools and better product search capabilities has helped boost a key metric for an online marketplace: gross merchandise sold (GMS). The total value of GMS also picked up pace during the first quarter of 2018 -- increasing 19.8% compared with 14.5% growth for the whole of 2017.

Looking ahead…..

Management wants to keep the ball rolling in the small-business support department, saying it will increase its marketing expenses by 40% this year to help further increase traffic to the site. Guidance for 2018 GMS growth was recently revised to 16% to 18% compared with previous expectations for only 14% to 16% growth.

The company issued a press release on June 14, laying out investment and growth initiatives that the market rewarded by bidding up the share price and delivering the stock's most rapid valuation gains to date.

The announcement detailed a series of new, added-service offerings. Etsy Plus has recently been made available and offers users special customization options, promotional listings, and other features at a monthly $10 rate. In 2019, the company will launch Etsy Premium -- which will include all the features of the standard and Plus packages as well as advanced management tools and specialized customer service tailored to larger businesses. Pricing for Premium has yet to be detailed. The company also announced that, starting on July 16, its sales commission fee will increase from 3.6% to 5%.

Analysts and Hedge Funds Opinions

Analysts at Stifel reiterated the shares of Etsy, Inc to Hold when they released a research note on June 15th, 2018.

Loop Capital analysts initiated the shares of Etsy, Inc. to Buy in a research note they presented on April 10th, 2018.

Analysts at ROTH Capital upgraded the shares of Etsy, Inc. from Neutral to Buy when they released a research note on February 28th, 2018, but they now have set a price target of $100, which is an increase from the previous $90.

Summary

With improving engagement metrics, international expansion plans, and new monetization initiatives, Etsy's business looks to become substantially more profitable. 2018 has already seen the company record substantial profits for for the first time since going public.

The overall growth outlook for the e-commerce market gives Etsy a promising backdrop to work with, and the company's specialized position could help insulate it from the threat of larger competitors.

Etsy has a debt-to-equity ratio of 0.71, a current ratio of 6.60, and a quick ratio of 6.60. The stock has a 52-week low of $13.58 while its 52-week high is $45.88. The total market cap for the stock is $5.14B while it has a PE ratio of 80.10; its price-to-earnings-growth ratio reads 11.04.






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