Zalando vs. Etsy: That’s why this 1 share is my top spot!

One thing in advance: The shares of Zalando (WKN: ZAL111) and Etsy (WKN: A14P98) are both in my portfolio. I am convinced that they are cheap right now and provide solid returns for long term investors. But there are still differences.

Only one of these two stocks is a top position in my portfolio. Yes, even the largest investment I have ever made. The other is more on the good midfield. Both are bets on e-commerce, which is still one of my favorite megatrends.

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To anticipate this answer: Etsy is significantly overweight compared to Zalando. But why? I can easily answer that for you.

That’s why it’s Etsy and not Zalando!

If I had to choose between Etsy and Zalando, there would be one feature that would swing the pendulum in one direction: profitability and margin profile. Therefore, I am very overweight on one stock relative to the other.

Etsy has built its own business model as a platform operator. This means that external dealers offer their goods for sale on the platform (or platforms). Whereas the company receives part of the sales price to list the goods, ideally sell them and use other company services. Meanwhile, this means that about one-fifth of revenue will be a net result. A solid perspective that is also extremely scalable.

Zalando, on the other hand, has a different business model: the e-commerce player is not just the platform operator, but also has its own logistics. To put it bluntly: this clearly has the advantage that you can better control the process yourself and influence the quality. But that just leads to high costs and at the moment at least to the fact that about 2% of the turnover of over 10 billion euros is the net result. Really small, but definitely expandable. Nevertheless, it is more difficult to scale this business model and e.g. achieve a net margin of 20% in the core business of e-commerce.

If we look at Zalando and Etsy shares, there are clear differences between price and sale. A value of around 0.8 is currently being compared to around 5. But for the price-earnings ratio, we have values ​​of 45 for the DACH fashion retailer and 23.8 for the self- and handmade niche retailer. A clear difference!

For me: A clear choice!

As I said, I am a long term supporter of both Zalando and Etsy and I think both e-commerce stocks have good value right now. Still, I like the one margin profile much better, which is why this stock is my top holding. Right now, both are faltering a bit in terms of revenue growth and earnings. But it can be a good way to take a closer look at one stock or another.

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Vincent owns shares in Etsy and Zalando. The Motley Fool owns shares in and recommends Etsy and Zalando.

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