Demand for face masks could last well into the fall as coronavirus cases rise in the U.S. Above, a mask worn during a Pride march in New York last month.
Photo: eduardo munoz/ReutersUnder normal circumstances, a $13 billion market value for an e-commerce company catering to crafters might look tremendously overvalued. Amid a pandemic, it could be a deal.
Etsy, which sells everything from gemstones to garden gnomes, has morphed into the ultimate pandemic play. It is taking advantage of the growing e-commerce trend in retail, but also has adapted to become a top seller of today’s most important accessory: the face mask. That product has helped catapult Etsy’s sales to new highs, which could be sustained much longer than Wall Street has forecast. It also could be an attractive customer acquisition tool to sell consumers millions of items they didn’t even know they needed until they happened upon them.
In early April, the Centers for Disease Control and Prevention changed its guidelines to recommend Americans wear face masks in public, leading to a sudden influx of consumers on Etsy’s site looking for personalized versions. Etsy quickly rallied its troops, mobilizing 20,000 sellers within days of the new guidelines and 60,000 mask sellers in April as a whole, according to the company.
That agility has proven to be a key advantage over competitors hamstrung by supply-chain constraints, warehouse closures and manufacturing and shipping delays. The company said it sold 12 million masks in April—17% of total gross market sales for the month—even as the broader retail market sunk. Analysis from KeyBanc shows Etsy now has a stronghold on the mask market among retailers, offering nearly a million mask selections compared with Zulily’s and Walmart’s several hundred each.
For a stock that has run about 250% in just over three months, the obvious question for investors is whether the recent sales surge has legs. Analysts are forecasting second-quarter sales to grow 80% year-over-year versus 37% growth in the same quarter last year, before easing to 38% growth in the third quarter.
Even that could be conservative. Third-party credit-card spending data observed by BTIG shows May outperforming April sales on the platform. Similarly, data from Rakuten Intelligence show the percentage of online shoppers on Etsy nearly doubled in April but climbed even higher in May. Rakuten’s data also show a greater percentage of online shoppers on Etsy’s platform in June than the year prior.
Continued demand for masks could last well into the fall. Children’s masks could soon be in greater demand as kids head to summer camps and back to schools. KeyBanc analyst Edward Yruma notes that, after spiking in April, Google searches for “cloth mask” have been increasing again over the last few weeks.
The mask craze won’t last forever, but could be just what Etsy needed to recruit new consumers to the site. The majority of Etsy’s customers have historically been female, but a recent survey from SunTrust found roughly the same percentage of men and women purchased from Etsy for the first time amid Covid-19. That survey also shows 85% of new and reactivated customers expect to purchase from the platform after the pandemic.
Etsy says it acquired 4 million new customers in April alone and that 32% of mask-related purchasers that month made a subsequent purchase on the platform within 14 days. Non-mask gross-market sales grew 79% year-over-year in April, according to the company. Many of these purchases were “nesting” items like candles and gardening supplies, the company said.
Sustained sales growth over the next four quarters could drive upside to Etsy’s shares, even as they have touched all-time highs. Face masks aside, Etsy has shown it can quickly capitalize on new opportunities as they present themselves in the future.
If nothing else, the pandemic has unmasked the potential of a marketplace many considered to be niche. At 15 years old, vintage by internet standards, Etsy has repurposed itself for mass appeal.
Write to Laura Forman at laura.forman@wsj.com and Jinjoo Lee at jinjoo.lee@wsj.com
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