Etsy Stock Skyrockets: Here’s Why Traders Are FOMOing In

Etsy shares surge as Wall Street wakes up to its niche dominance—just as retail investors pile in late.

Handmade hype meets algos

The crafts platform’s stock ripped higher after clearing Q2 revenue estimates, proving hipsters still overpay for macramé. Sellers added 7% YoY while buyers—apparently bored of Temu’s factory dreck—flocked back to artisanal markups.

Guidance juiced the rally

Management’s raised FY forecast suggests even inflation can’t kill the urge to splurge on $50 crocheted pumpkins. Adjusted EBITDA margins hit 18%, because nothing spells ‘premium’ like charging creators for ads.

Short squeeze or sustainable?

With short interest at 12% of float, bears got steamrolled. But as PayPal’s BNPL options hit checkout pages, Etsy’s ‘luxury flea market’ vibe faces its real test: Can it stay quirky at scale?

Another day, another meme stock masquerading as a growth play. At least this one comes with free shipping.

Image source: Getty Images.

Etsy's Q2 earnings

Etsy's gross merchandise sales declined 5% in Q2, but thanks to improved advertising sales on the Etsy website, revenue for the company actually grew 4%. The bad news is that the profit margin Etsy earned on these revenues declined steeply, falling to 4.3%. As a result, net income deteriorated, and the company earned only $28.8 million in Q2 -- down 46% year over year.

Stock buybacks helped to mitigate the damage by concentrating profit in fewer shares outstanding, but earnings per share still declined 39%.

Is Etsy stock a buy?

Investors don't seem upset by the decline in profit, focusing instead on the growth in revenue -- and they may be right to be optimistic.

On one hand, yes, Etsy's profit-and-loss statement is a mess, with generally accepted accounting principles (GAAP) net income down by two-thirds from the high hit in 2021, and trailing profit now barely half what Etsy earned last year.

But on the other hand, Etsy's free cash FLOW remains intact, with $671 million in cash profit earned over the last 12 months. On a $6.8 billion market capitalization, that's a price-to-free cash flow ratio of barely 10x.

With Etsy's FCF forecast to grow more than 40% over the next four years, that price seems fine. It's not a screaming bargain, true, but 10x FCF for 10%-ish annual growth seems more than fair to me. Therefore, Etsy stock is a buy.