The positive long-term outlook of the internet industry is driven by the increase in online activities and the rapid progress in 5G technology. In this context, I have compared the fundamentals of two leading e-commerce giants, Amazon.com, Inc. (AMZN) and Etsy, Inc. (ETSY), to determine which one could be the better pick.
The global impact of the COVID-19 pandemic has acted as a catalyst, expediting the process of digital transformation at a pace much faster than originally anticipated. The profound changes in societal behavior, driven by factors like remote work, online education, and increased reliance on e-commerce, underscore the vital role the internet plays in shaping contemporary lifestyles.
In 2023, the global count of active internet users exceeded 5.30 billion, accounting for 65.4% of the global population, underscoring the widespread and pervasive adoption of internet connectivity. As we move further in 2024, this number is expected to continue its upward trajectory, reaching a noteworthy 6.54 billion by 2025.
Furthermore, as internet penetration and smartphone usage rise, consumer preferences are shifting toward online purchases. Projections indicate that the e-commerce market is poised to reach a staggering $8.80 trillion this year and is further anticipated to surge to a remarkable $18.81 trillion, growing at a 15.8% CAGR spanning 2024 to 2029.
On top of it, the prospects of the internet industry are bolstered by the widespread adoption of 5G technology, offering faster and more reliable connectivity. Global 5G subscriptions are anticipated to surpass 5.30 billion in 2029, constituting 58% of all mobile subscriptions at that point, reflecting the increasing demand and adoption of this advanced technology on a global scale.
In light of such a favorable industry outlook, both AMZN and ETSY should benefit. However, AMZN appears to be a clear winner in terms of price performance. Over the past six months, AMZN’s shares have rallied 20.7%, while ETSY’s shares plunged 29.4%.
Moreover, AMZN’s shares have surged 2.3% over the past month to close the last trading session at $156.87. In contrast, ETSY’s shares have tumbled 19.6% over the past month to close the last trading session at $68.32.
However, to find out which Internet stock could be the ideal buy, let’s dig deeper into their fundamentals:
Recent Developments
On January 10, 2024, AMZN unveiled the Buy with Prime integration for Salesforce Commerce Cloud, allowing seamless incorporation of Buy with Prime into the existing shopping experience for Salesforce merchants. This integration introduces new features, such as the ability for shoppers to search and filter Prime eligible items and purchase both Prime eligible and other items in a single order.
It aims to help Salesforce merchants attract new customers and enhance conversion rates by providing the convenient benefits of Prime, including fast, free delivery, a secure checkout process, 24/7 live chat support, and easy returns.
Conversely, On January 24, 2024, ETSY introduced "Gift Mode," an AI-driven feature that uses an online quiz to provide personalized gift suggestions based on specific preferences. The quiz covers details like the recipient's relationship, occasion, and interests, offering tailored gift guides from ETSY’s extensive selection of over 100 million items, organized into more than 200 different personas.
Recent Financial Results
For the fiscal third quarter, which ended September 30, 2023, AMZN’s total net sales increased 12.6% year-over-year to $143.08 billion. Its operating income grew 343.1% from the year-ago value to $11.19 billion. Furthermore, the company’s net income and EPS came in at $9.88 billion and $0.94, up 244% and 235.7% from the prior-year quarter, respectively.
ETSY’s revenue for the fiscal third quarter (ended September 30, 2023) amounted to $636.30 million, while its net income came in at $87.85 million and $0.64 per share, respectively.
During the same period, the company’s cash and cash equivalents and total current assets amounted to $741.96 million and $1.34 billion, declining 19.5% and 11.3% compared to $921.28 million and $1.51 billion as of December 31, 2022, respectively.
Past and Expected Financial Performance
AMZN’s revenue and EBITDA have grown at CAGRs of 16.8% and 19.2% over the past three years, respectively. Its net income and EPS have increased at CAGRs of 4.9% and 3.9% during the same period, respectively.
Analysts expect AMZN’s revenue for the fiscal fourth quarter (ended December 2023) to increase by 11.2% year-over-year to $166.18 billion, while its EPS for the same quarter is projected to increase significantly year-over-year to $0.79.
Over the past three years, ETSY’s revenue and EBITDA have grown at CAGRs of 25.3% and 9.3%, respectively. While its net income and EPS have increased at CAGRs of 12.9% and 9.8%, during the same time frame, respectively.
Street expects ETSY’s revenue and EPS for the fiscal fourth quarter (ended December 2023) to increase 2.5% and 16.6% year-over-year to $827.38 million and $1.34, respectively.
Profitability
AMZN’s trailing-12-month asset turnover ratio of 1.21x is higher than ETSY’s 1.11x. Likewise, AMZN’s trailing-12-month CAPEX/Sales of 9.88% is higher than ETSY’s 0.59%.
Thus, AMZN is more profitable.
Valuation
In terms of the forward EV/Sales ratio, ETSY’s 3.59x is 19.7% higher than AMZN’s 3.00x. Likewise, ETSY’s forward Price/Sales ratio of 3.08x is 9.2% higher than AMZN’s 2.82x. Furthermore, ETSY’s forward non-GAAP PEG multiple of 2.83 is 25.2% higher than AMZN’s 2.26.
Thus, AMZN is more affordable.
POWR Ratings
AMZN has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. Conversely, ETSY has an overall rating of C, translating to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. AMZN has a grade of B for Growth, which is consistent with its robust financial results in the third quarter. On the other hand, ETSY has a D grade for Growth, which is in sync with its weaker financial performance in the third quarter.
Moreover, AMZN’s C grade for Stability is justified by its 60-month beta of 1.16. In contrast, ETSY’s D grade for Stability is consistent with its 60-month beta of 2.06.
Among the 53 stocks in the B-rated Internet industry, AMZN is ranked #11, while ETSY is ranked #44.
Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Sentiment, and Quality. Click here to view AMZN ratings. Get all ETSY ratings here.
The Winner
While both AMZN and ETSY should benefit from the promising internet industry landscape due to the growth of e-commerce and 5G connections, AMZN’s superior financials, higher profitability, and lower valuation could make it a better investment candidate for your portfolio over ETSY.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Internet industry here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
AMZN shares were trading at $157.25 per share on Thursday morning, up $0.38 (+0.24%). Year-to-date, AMZN has gained 3.49%, versus a 2.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
Amazon.com (AMZN) vs. Etsy (ETSY) - Which Internet Stock Is Winning Investors Over? StockNews.com
