This ecommerce stock is on a buying wave
Etsy (NASDAQ: ETSY) certainly made a name for itself during the pandemic, when its vendors came together to make millions of face masks for consumers. But if that’s all you know about Etsy, you’re missing the big picture. This company has carved its own niche in the rapidly growing e-commerce space. Specifically, the Etsy Marketplace offers handcrafted and crafted goods, helping shoppers find items that can’t be mass produced or commoditized.
Over the past few years, Etsy has made several key acquisitions, including the Reverb music hardware market, the Depop fashion resale platform, and Elo7, which has been described as âthe Etsy of Brazilâ. Collectively, these movements help Etsy maintain its image as a supplier of unique and specialized products.
In this Backstage Pass video, which aired on September 14Motley Fool contributor Jose Najarro shares his thoughts on Etsy, including the impact of his recent shopping spree.
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JosÃ© Najarro: It is more of this e-commerce for the single user. Now that I actually remember when I got married I used Etsy to get something for my groomsmen, something personal. This seems to be one of the main players for Etsy. You can see a lot of unique things.
If you go to the website right now, you will get a lot of unique Halloween products, so this is where Etsy makes its uniqueness, the strengths of the business. If we take a quick look at how this business makes money, there are two main forms of income. The first is the market. The market is your standard income. Here is your SEO fees, your transaction fees, your payment platforms, your offsite ads, and that’s about 75% of Etsy’s total revenue, and it’s growing 20% ââyear over year.
The second part is income from services. Just recently, as I mentioned with JD.com, I believe, now when you select an article, the first articles are the ones that are paid for through advertising. This is something that Etsy has recently started to do. Now service revenue, you can see advertising is a big part of it, shipping labels and the like, and it’s about 25% and that’s a 38% increase year over year. .
We can see this business, this action has definitely taken a hit in recent days after the results. It’s about the year-over-year revenue growth not as strong as it used to be. We can see the previous quarters they have increased over 100% year over year growth. Now they are increasing by 13%. But remember, we are in different situations right now. Back then, while seeing this growth in e-commerce due to COVID, but for them to still see year-over-year growth where many thought they were probably going to decrease over time, I think it is quite impressive.
You can see that revenue has grown 23% year over year and is profitable when you look at Adjusted EBITDA margins. One of my huge, I want to say, the growth potential of this business will be all of its acquisitions. In the past few quarters, Etsy has purchased three small businesses. Reverb, which is more of re-commerce and that’s when you sell more used items. Reverb is when you sell a lot of second-hand or second-hand instruments, for example, and it’s mostly in the Millennial or Gen X clientele.
They just bought Depop, which is more of re-commerce, clothing and fashion selling. Again, this is the younger Gen Z hitting the UK and the US. Then the other is Elo7. It is mainly in Brazil and many people have called it the âEtsy of Brazilâ because it is unique and homemade crafts. Etsy, right now, is making smart acquisitions. It really seems that the target they are targeting is definitely the younger generation and those who sell second-hand items. It seems there is a strong market for items like this.
Jose Najarro owns shares of JD.com. Trevor Jennewine owns shares of Etsy. The Motley Fool owns stock and recommends Etsy and JD.com. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.