Why Shopify and Etsy Stocks Are No-Brainer Buys Right Now

Investors have some wildly different opinions about Shopify (SHOP 1.32%) and Etsy (ETSY -1.31%) stocks right now. News of a strategic pivot has helped Shopify shares trounce the market’s rally so far in 2023, while Etsy slid into deeply negative territory year to date after its growth rates slowed.

Both stocks look like attractive long-term buys, though, as their platforms prepare to handle greater transaction volumes. The e-commerce industry is highly likely to expand further in the coming decades, and should reward the most innovative market-share leaders in the process.

With that bright outlook in mind, let’s take a look at some good reasons to like Shopify and Etsy stocks right now.

Shopify is growing strong

Wall Street was thrilled to hear that Shopify was exiting the logistics business as this move is likely to immediately increase its profitability while freeing management up to focus on more high-margin growth opportunities. It was clear from the company’s last earnings report that there are some great opportunities here.

Shopify said in early May that sales trends accelerated in the first quarter. Transaction volumes were surprisingly strong, rising 18% year over year after adjusting for currency exchange rate shifts.

Growth rates were even better in areas like its merchant solutions niche and its new payments processing division, implying that it is successful at convincing sellers to commit to more of its services over time. “Shopify’s strong…results demonstrate once again that we’re the go-to solution powering businesses of all sizes,” said Harley Finkelstein, the company’s president, in a press release.

Shareholders can look forward to these solutions growing as a percentage of the overall business, which should support higher annual earnings. True, Shopify hasn’t yet demonstrated that it can generate sustainably positive profits. But it is taking big steps in that direction, aided by healthy growth rates.

Etsy has potential

Investors willing to take on more risk might want to consider Etsy stock. Sure, its sales growth has slowed since the social-distancing phase of the pandemic, when people were enthusiastically buying and selling products online.

But Etsy’s buyer pool — customers who have been active in the past year — just returned to modest growth, rising 1% in the latest quarter. That sets it apart from peers like eBay, which saw its buyer pool drop 7%. Also, Etsy’s revenue rose 11% last quarter, in part due to the fact that it has raised its seller fees.

ETSY Operating Margin (TTM) Chart

ETSY Operating Margin (TTM) data by YCharts.

Etsy has ambitions to greatly expand its pool of buyers and sellers over time. The user experience for both groups is likely to improve significantly over the next few years as the company incorporates more AI into its search and browsing processes while adding more seller services. Etsy aims to pair technology with human curation to help buyers find unique products, for example.

Investors don’t have to pay a huge premium for the stock right now, thanks to Wall Street’s low expectations for Etsy’s 2023 growth. Shares are valued at less than 5 times annual sales, down from around 8 in mid-2022. That’s an attractive discount for a company that’s still expanding its sales footprint and targeting improving earnings results over the next several years.

Demitri Kalogeropoulos has positions in Shopify. The Motley Fool has positions in and recommends Etsy and Shopify. The Motley Fool recommends eBay and recommends the following options: short July 2023 $47.50 calls on eBay. The Motley Fool has a disclosure policy.