Amazon vs. Etsy: Which Stock is a Better Buy?

Table of Contents

1. Introduction
2. Amazon's Q1 Earnings Results
   1. Good News
   2. Bad News
3. Etsy's Q1 Earnings Results
   1. Good News
   2. Bad News
4. Comparison of Amazon and Etsy's Stock Price Valuation
5. Operating Profit Margin Comparison
6. Valuation Comparison
7. Conclusion
8. Top Stocks to Buy Now
9. FAQ

Amazon vs. Etsy: Which Stock is a Better Buy?

In this article, we will compare Amazon and Etsy's stock and determine which one is the better buy. Both companies have recently reported their Q1 earnings results, and we will analyze the good and bad news for each company. We will also compare their stock price valuation and operating profit margins to determine which stock is the better investment.

Amazon's Q1 Earnings Results

Amazon's Q1 earnings results were a mixed bag. While revenue increased by 9%, operating income increased to $4.8 billion, and operating cash flow increased by 38% to $54 billion, cloud revenue decreased. AWS income was $5.1 billion, compared to $6.5 billion in the same quarter the prior year. This is where Amazon is facing the biggest headwind, as its most profitable segment, AWS, is experiencing decelerating revenue growth and profit margins.

Good News

The good news for Amazon is that revenue, operating income, and operating cash flow all increased. This shows that Amazon is still growing and generating cash flow.

Bad News

The bad news for Amazon is that its most profitable segment, AWS, is experiencing decelerating revenue growth and profit margins. This is a headwind for Amazon stock.

Etsy's Q1 Earnings Results

Etsy's Q1 earnings results were also mixed. While revenue increased by 11%, earnings per share decreased to 53 cents, down from 60 cents in the same quarter the prior year. The good news for Etsy is that the company was able to increase its transaction take rate to 21%, up from 18% in the first quarter last year. Etsy has one of the highest industry transaction take rates, which means that the inventory sold on Etsy's platform is not owned by Etsy. Etsy just operates the platform and takes a piece of the transaction for itself.

Good News

The good news for Etsy is that it has one of the highest industry transaction take rates. This is a lucrative source of revenue for the company.

Bad News

The bad news for Etsy is that it is expecting a slowdown in the second quarter. Revenue of $615 million at the midpoint would be less than the $641 million in the first quarter, although that would still be growth year over year. The headwind for Etsy is that it was a prime pandemic beneficiary, and now that economies are reopening, it is catching less of a tailwind from people staying at home and shopping online.

Comparison of Amazon and Etsy's Stock Price Valuation

Judging by the forward price-to-earnings ratio, Amazon is more than twice as expensive as Etsy. Amazon is trading at a forward P/E of 42, compared to a forward P/E of 19 for Etsy.

Operating Profit Margin Comparison

If we look at the operating profit margin over the last 10 years, going back to 2013-14, we can see that Etsy has done an incredible job boosting its operating profit margins. It has a big lead over Amazon, with an operating profit margin of 14.47%, compared to just 2.54% for Amazon. The big difference maker here is in the business model. Etsy does not own any of the inventory on the platform, nor does it deal with shipping and handling. It leaves that to buyers and sellers, which leaves it a very lucrative source of revenue.

Valuation Comparison

Amazon is more than twice as expensive as Etsy, judging by the forward price-to-earnings ratio. Amazon is trading at a forward P/E of 42, compared to a forward P/E of 19 for Etsy.

Conclusion

Given all of the information we have analyzed, if we had to choose between one of these two stocks to buy right now, we would pick Etsy as the better investment. Etsy has a higher transaction take rate, a better operating profit margin, and a lower valuation than Amazon.

Top Stocks to Buy Now

Etsy is one of our top 17 stocks to buy right now. For the full list, please visit the link to our video in the conclusion section.

FAQ

Q: What is the transaction take rate? A: The transaction take rate is the percentage of revenue that a company takes from each transaction on its platform.

Q: Why is Etsy's operating profit margin higher than Amazon's? A: Etsy's operating profit margin is higher than Amazon's because it does not own any of the inventory on the platform, nor does it deal with shipping and handling. It leaves that to buyers and sellers, which leaves it a very lucrative source of revenue.

Q: Why is Amazon more expensive than Etsy? A: Amazon is more expensive than Etsy because it has a higher forward price-to-earnings ratio.