Online merchants were among the first to benefit from the pandemic’s outbreak. Hundreds of millions of people were looking to avoid physical retail and flocked online to locate what they needed and wanted. eBay (EBAY 3.33%) and Etsy (ETSY 2.36%) benefited as sales increased.
However, because economies are resuming, the tailwind is turning into a headwind. Given that context, which stock is superior: eBay or Etsy?
Etsy and eBay are two of the most famous marketplaces for independent artists, with Etsy being a bit more artist-friendly. Importantly, as with Etsy, eBay does not own the products listed on its platform; instead, it serves as a link between purchasers and sellers. Revenue is taken from these transactions by eBay.
eBay has had a difficult decade. Over the previous ten years, its revenue has decreased at a compound annual rate of 1.1 percent. However, this is primarily because of divestitures. As an example, eBay sold 80% of its Korean marketplace firm to Emart for $3 billion in Q2 2021.
To put it another way, in the four years since eBay’s IPO, the company has grown earnings per share at a compound annual rate of 23.6 percent. Given its asset-light business model, when revenue shot up in 2020 and 2021 as a result of the pandemic, the majority of it went to the bottom line.
Revenue in the company’s most recent quarter, which ended on March 31, fell by 5%. There’s no telling how far this will fall as people have more alternatives for spending their money once the pandemic is over. Despite the fact that several economic cycles have come and gone since eBay was founded in 1995, its business has proven resilient, so investors can anticipate it to endure these headwinds relatively unharmed.
In many ways, Etsy is similar to eBay. It, too, has an asset-light business model that draws buyers and sellers to the site to do business. ETSY markets itself as a location for people seeking unique, handcrafted goods. For example, at the epidemic’s start, Etsy sales increased dramatically as customers rushed to the site in order to acquire hand-crafted face masks.
Of course, younger, smaller firms tend to develop at a faster rate than larger businesses. Etsy has not been an exception. Its revenue has grown from $75 million in 2012 to $2.3 billion in 2021. Surprisingly, Etsy became profitable in 2017, earning $0.68 per share and increasing to $3.40 in 2021.
Etsy is facing the same economic headwinds as eBay, but revenue growth is slowing rather than turning negative. Customers are spending less money on e-commerce websites and more money on away-from-home experiences like restaurants, travel, and movie theaters.
eBay is the better stock to buy now
eBay and Etsy are both outstanding asset-light companies that generate strong earnings per share, but if you had to choose only one stock to buy, it should be eBay. It all comes down to price. eBay is selling at less than half the price-to-sales ratio of Etsy, and it’s a more resilient company because it already has scale in buyers and sellers.