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Investment Thesis
Etsy is a great company that truly embodies conscious capitalism. We are big fans of any business that helps grow and scale other businesses and that is exactly what Etsy does. We believe Etsy has a phenomenal technology suite, sound strategy, and great mission creating an excellent foundation for growth.
Description
Etsy Inc is an American retailer of handmade goods, vintage items, and crafted goods. The business model is based on sellers listing products on Etsy's platform. The company offers approximately 66 million items in its various retail categories to buyers. It also provides various seller services, including Etsy Payments, a payment processing service; Etsy Ads, an advertising platform; and Etsy Shipping Labels
Qualitative
Overview:
Sector: Consumer Discretionary
Industry: Internet & Direct Marketing Retail
Competitors: EBAY, AMZN, SHOP
Strategy: Keep Commerce Human
Best-in-class search and discovery; personalized search
Human connections – increased adoption of seller listing videos
Trusted brand – improved shipping transparency & post-purchase experience
Collection of unique items - more visual and scrollable shop sections
Business Model: Two-sided marketplace
Etsy operates a two-sided online marketplace that connects millions of buyers and sellers.
Sellers: Etsy believes their sellers are the “heart and soul” of their platform. Etsy’s business model is seller-aligned, they make money when the sellers make money. Etsy offers a range of tools and services to entrepreneurs targeted at generating more sales and scaling their business.
Buyers: Buyers come to Etsy to be inspired and delighted by unique items. Etsy is focused on attracting buyers looking for a special occasion purchase and everyday items that have meaning.
Market: Sellers & Buyers
Sellers: 3.5M active sellers, 87% of sellers identify as women, 75% consider their shop a business.
Buyers: ~46M buyers who value self-expression, unique items, and buying directly from creative entrepreneurs.
36.2% of active sellers and 37.9% of active buyers as of December 31, 2016 continued to be active on the platform through their fourth year.
Differentiation: Economic Empowerment
Economic Impact – make creative entrepreneurship a path to economic security and personal empowerment.
Social Impact – Enable equitable access to the opportunities Etsy helps create.
Ecological Impact – Build long-term resilience by eliminating carbon impacts and fostering responsible resource use.
In a survey of Etsy buyers, 88% agreed that Etsy has items you cannot find anywhere else
X-Factor: Personalized search & Ads
Etsy has made considerable investments into building a sophisticated platform that collects and analyzes large volumes of data to enhance the performance of the platform.
Etsy uses proprietary machine learning algorithms to create an engaging shopping experience for both buyers and sellers across the platform.
As of September 2020, different buyers receive different results for similar queries.
Etsy is categorizing historical and contextual personalization features to learn user’s tastes and preferences.
Etsy is working on applying personalized ads to drive relevance for on-site advertising.
Cash Cow: Marketplace Revenue
Marketplace revenue made up 76% of total revenue totaling $342M, up 141% YoY.
Services revenue increased 95% YoY making up the remainder 24% of revenue ($110M of $452M)
Revenue growth has been driven by gross merchandise sales volume and the continued expansion of Etsy Payments.
Transaction revenue has increased 121% YoY and 92% of gross merchandise sales processed through Etsy Payments.
Tremendous growth in traditional top categories
Growth Opportunities:
Geographic expansions outside of their core geographies (United States, UK, Germany, France, Australia, and Canada).
Acquiring adjacent marketplaces (bought Reverb, a musical instrument marketplace, in 2019).
Vertical marketplace extensions.
Technology additions
Quantitative
Risks
This industry is highly competitive and there are a plethora of options for sellers to list their goods including social networks like Facebook and Instagram or traditional retailers and wholesalers.
Etsy is dependent on attracting both buyers and sellers and making sure those transactions continue to be done on their platform.
Etsy relies on its sellers to provide a fulfilling experience to their buyers.
Learn Something
Company Materials: 10-K | Q3 Presentation | Investor Relations
Entrepreneur: The 'Etsy Economy' and Changing the Way We Shop
The New York Times: Inside the Revolution at Etsy
Forbes: Etsy’s Push To Compete With Amazon Leaves Sellers Squeezed By Rising Costs