Bailey Pemberton
4 min read
Etsy shares have bounced back sharply in the shorter term, yet the longer track record has been far rougher, which puts fresh attention on whether the current price can be explained by the cash the business is expected to generate. For anyone considering the stock today, the question is how that cash flow story lines up with the recent share price recovery.
-
Over the past 5 years the stock has declined 64.7%, which puts investors squarely on the issue of whether the current valuation is now more aligned with what Etsy’s future cash flows can support.
-
The latest test of capped shipping rates, where Etsy subsidizes part of delivery costs for some US buyers, may influence future cash generation by affecting buyer demand, seller economics and the platform’s margin mix.
-
Prefer to judge Etsy on earnings? See why Etsy’s 21.0x P/E tells a different valuation story.
The issue now is whether Etsy’s recent share price level is adequately backed by the cash flows implied by a Discounted Cash Flow (DCF) intrinsic value estimate.
If you want to test the same cash flow lens you are using on Etsy across a wider set of ideas, start with 33 high quality undervalued stocks.
Is Etsy Still Cheap on Cash Flow?
The Discounted Cash Flow (DCF) approach here starts with the cash Etsy is already producing and then projects it forward. Over the last twelve months the marketplace generated about $609.0 million of free cash flow, and the two stage model assumes that this pool of cash keeps growing through the next decade rather than shrinking. Those projections build toward free cash flows in the late 2020s and early 2030s that are higher than today in absolute dollar terms, all converted into today’s money using a discount rate.
On that cash flow path, the DCF output sits substantially above the current share price of $85.14. This suggests the market is paying less than the model implies for each future dollar of Etsy’s cash generation. The recent test of capped, Etsy funded shipping helps explain part of that gap, since subsidizing delivery can pressure margins even if it improves the buyer experience and long term demand. To see how that valuation gap is calculated in detail, including every cash flow assumption, open up the full model view. Find out what Etsy could be worth using our Discounted Cash Flow (DCF) estimate.
The Etsy Narrative: What Would Justify Today’s Price?
Simply Wall St Narratives pick up where the Etsy valuation puzzle leaves off by spelling out which expectations for growth, profitability and earnings would need to hold for the shares to be worth materially more or materially less than the current price. Each one treats Etsy’s fair value as a concrete thesis about how the business might develop that you can revisit over time, rather than a static snapshot.
