Motley Fool: Handmade and vintage e-commerce

A company known for handmade and vintage things may not seem like a stock market and internet sensation, but online marketplace Etsy (Nasdaq: ETSY) has been on a tear, roughly quintupling in value over the past three years. Better still, it’s poised for further growth.

In its first quarter, Etsy posted revenue growth of 141%, while net income soared more than tenfold. The past few quarters have had rapid growth, but management has warned of some headwinds and slowing growth now that the U.S. economy is reopening and many people are resuming shopping trips to brick-and-mortar stores.

There’s still much to like about Etsy’s prospects, though. For one thing, double-digit growth is still respectable. Also, e-commerce is still growing, and the pandemic got more people used to shopping online. Etsy has seen a boom in new buyers and sellers on its platform, too – a sign that brand awareness and engagement have surged as well. Active buyers on the platform nearly doubled to 90.7 million over the last year, and active sellers rose by 67% to 4.7 million.

Finally, the surge in profits shows the scalability of the company’s marketplace model, and profit margins should only get better over the long term. Recently down about a quarter from their 52-week high, Etsy shares are starting to look like a bargain. (The Motley Fool owns shares of and has recommended Etsy.)

Ask the Fool

Q: What happens to my mortgage if I die before paying it off? – C.S., Opelika, Alabama

A: If you have a co-signer or co-borrower on the mortgage (say, you borrowed the money with your spouse), that person will be responsible for making payments. If there’s no co-signer or co-borrower, someone will likely inherit the home. They can then take over the mortgage without having to apply and be approved for a home loan. Federal laws allow heirs to assume mortgages.

In either case, if payments don’t continue, the lender has the right to foreclose, as mortgages are “secured” loans – secured by the property.

Often, a home will be sold when its owners have died – in order to pay off debts, or perhaps simply because no one wants to keep the home. If a person who dies has other outstanding debts that can’t be paid back without selling the home, some states require that it be sold to settle the estate.

It’s worth making your wishes clear in your will as to who should inherit your home when you die. Consulting with an estate lawyer can be helpful.

Q: If a stock splits, what happens to its P/E ratio? – L.F., Sioux City, Iowa

A: A split doesn’t change a price-to-earnings (P/E) ratio. A P/E ratio is simply a company’s stock price divided by the past year’s earnings per share (EPS). A stock trading at $50 per share with EPS of $5 will have a P/E of 10 (50 divided by 5). If the stock splits 2-for-1, the shares will be priced at $25 and the EPS will also be halved, resulting in an unchanged P/E, as 25 divided by 2.5 is 10.

My dumbest investment

My dumbest investment was in the IPO for CafePress. I got burned. – J.L., online

The Fool responds: CafePress is still around, as a website where anyone can upload designs that others can buy, printed on T-shirts, mugs, cards and other products. Founded in 1999, the company calls itself “the recognized pioneer of customizable products.”

CafePress went public – selling shares of itself via an initial public offering – in 2012. While some IPOs soar immediately (often to settle down later in the year), CafePress’s debut was, in one report’s words, “lukewarm”: Shares started trading at $21.50 and ended the day at $19.03. The stock had been priced richly, with a steep price-to-earnings (P/E) ratio, which baked in very high expectations that ultimately weren’t met.

Within a few years, the company was struggling, posting shrinking revenue, laying off workers and cutting its CEO’s pay. One problem, reportedly, was that a change in Google’s algorithm no longer placed CafePress as prominently in search results, which resulted in fewer visits to its site and fewer sales. In 2018, CafePress was bought by Snapfish, which itself was later merged with Shutterfly; in 2020, CafePress was bought again, by PlanetArt.

You weren’t the only investor burned. At its IPO, CafePress was valued at more than $320 million; Snapfish bought it for about $25 million. It’s often good to steer clear of IPOs in their first year.