Etsy and Shopify supported while Covid-19 drives online sales

Analysts remain optimistic about the outlook for the companies, although their stocks are pricey.

Shopify trades at about 350 times analyst expectations for future earnings, while Etsy’s forward multiple is about 90 times. In comparison, tech giants such as Apple Inc.

and Amazon.com Inc.

trade at approximately 35 times and 70 times the expected profit, respectively.

The high valuations for Etsy and Shopify reflect speculation that sales growth will continue at a rapid pace and some consumer behaviors that changed during the Covid-19 pandemic will persist. The valuations also reflect investors’ rush to get hold of shares in a variety of technology companies.

For many small business owners, the technology platforms have served as a lifeline as their businesses turned to online sales.

Matthew Cummings owns a glass factory that makes custom beer glasses in Knoxville, Tennessee. He’s been on Etsy since 2012, but didn’t go fully online until the pandemic hit and he closed the doors of his brick and mortar shop. He said his Etsy sales are about 10 times higher this year.

Mr. Cummings said his sales on Etsy helped him cover his business expenses and that his online store allowed him to make a profit from 2020. He plans to sell through the platform after the pandemic, with his company now reaching Australia. He has seen a new wave of repeat customers looking to complete their sets of his custom beer glasses.

While Etsy and Shopify used to be more of an occasional place for shoppers looking for unique gifts, the pandemic inspired shoppers to come back multiple times, said Tom Forte, an equity analyst at DA Davidson. Both Etsy and Shopify have made a concerted effort to support their suppliers with means to reach more customers, said Mr. Forte.

“If you look at Shopify, it’s done well because it’s bent over backwards to try and inject them with sales,” he said. Shopify has introduced a variety of new features, including digital gift cards and support for suppliers to improve their online stores.

Both companies have kept their prices competitive during the pandemic. Etsy charges 20 cents per item listed by a seller and a 5% transaction fee for each sale. Shopify offers tiered monthly plans. The most basic level charges a monthly fee of $ 29 for sellers and a transaction fee of 2.9%.

One type of sale that may not last longer than the pandemic is masks.

Etsy reported that masks accounted for 11% of total gross merchandise sales in the third quarter.

Analysts remain optimistic about Etsy and Shopify. Mr. Forte believes sales growth will be good in the first half of 2021 as people wait for the Covid-19 vaccine.

The question is whether an end to the pandemic will cool online shopping behavior. Any dip in growth could cause stocks to plummet, Mr Forte said.

Write to Amber Burton at [email protected]