A Look at the Hobby Industry and Prospects to Watch

The concept of hobbies is as old as time – evolving and changing with each new generation. In Mesopotamia, people would spend their leisure hours fishing and playing board games e.g., the famous "The Royal Game of Ur." The Renaissance saw an emergence of flourishing artists, painters, and poets. Hobbies, in modern times, encompass everything from painting and home decor to collectibles and gaming.

The revenue of the toys, hobby, and DIY industry in the U.S. has climbed significantly in the last five years, with a forecast of 28.8 billion U.S. dollars in revenue between 2023 and 2027. Many retail stores today offer products targeted towards creatives who spend their time on arts and crafts, interior design, DIY projects, and more.

The popular retail chain Michaels is a desirable stop for artists and crafters. With over 1,200 stores in North America, the company offers a range of supplies including arts and crafts, home decor, fabric and sewing, knitting and crocheting, and jewelry-making materials.

Similar to Michaels, Hobby Lobby is also a crafters' sanctuary. Ranging from yarn and needlecraft supplies to home decor and decorative items – the store is a one-stop shop for crafters, not to mention a stop for hobbies such as remote-controlled cars.

While many hobby shops in the U.S. are brick-and-mortar stores, purely online stores like Mega Hobby, Tower Hobbies, and Horizon Hobby also offer a huge variety of hobby-related merchandise. Many of these websites have been around since the late nineties and have been doing well in the business. Tower Hobbies is more of a niche market for those interested in remote-controlled vehicles, such as cars, trucks, airplanes, helicopters, and boats. The store offers myriad replacement parts, upgrades, and accessories for the vehicles. Mega Hobby also offers model kits e.g., plastic models for remote-controlled vehicles. Miniature accessories such as radio transmitters, batteries, and chargers are also offered to create a complete model of a vehicle with all its parts.

Technology in the hobby industry

Much of the technology that hobby companies use revolves around supporting everyday operations and improving the customer experience. It is quite common today to use a Customer Relationship Management (CRM) System. These systems help manage customer data, analyze customer behavior, and offer personalized promotions and discounts. Utilizing data analytics tools provides insights into customer preferences, sales trends, and other crucial business information.

An integral part of marketing today involves the use of social media platforms such as Instagram, Pinterest, TikTok, and Facebook for content such as promotions, event announcements, and more. Michael’s TikTok page has over 618K followers and a cumulative of around 11 million likes on their content. The TikTok page features a variety of ways the stores' supplies can be used to create DIY projects, Halloween decorations, gift ideas, and more. Hobby Lobby’s Instagram page has over 2.4 million followers and features crafty ideas for home decor, seasonal craft shopping, and party ideas.

Publicly traded companies in the domain

With their quick delivery times and a wide range of options to choose from, many crafters prefer shopping at Etsy (ETSY) and Amazon (AMZN). Etsy offers a wide range of handmade crafts, DIY kits, vintage collectibles, personalized items, and more. On Amazon, shoppers can find almost any product under the hobby umbrella.

Last week AMZN showed strong Q3 results – surpassing top and bottom-line expectations. Year to date, the stock is up 56%. The forecast for FY24 also looks positive and earnings are expected to climb another 40%. The stock currently has a Zacks Rank of #3 (Hold). Holding the stock now can be promising in the long run.

During the pandemic, ETSY stock soared, but it has lost its momentum since. Acquiring Depop and Elo7 and later selling Elo7 at a loss also significantly impacted the stock price. However, Etsy has reported a 7% sequential growth in active sellers. It is also highly profitable on an adjusted earnings before interest depreciation and amortization (EBITDA) basis. While the stock has been down significantly since the pandemic, if the revenue continues to grow in the next earnings report (November 1st), the stock might see an upward trend. 

The latest consensus projects Etsy’s revenue to reach $630.68 million in the next earnings report – a 6.09% rise when compared to the corresponding quarter of the prior year.

Hobby industry: to invest or not?

The hobby industry is quite diverse – offering everything from art and collectibles to gaming and party supplies. A lot of art enthusiasts buy collectibles with the intention of keeping them as an investment. Those who are not into collectibles may consider investing in the company’s stock. 

While the industry is doing well, it has not yet played with new technology such as artificial intelligence. If private companies don’t keep up with the changing technological landscape, they may lose out to retail juggernauts like Amazon.  Many hobby companies remain private and may not choose to go public. At this time, for investors, sticking to safer options like Amazon and Etsy may be wiser.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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