Etsy: A Growing Niche E-Tail Play

Sep. 15, 2020 10:38 AM ETEtsy, Inc. (ETSY)12 Comments

Summary

  • ETSY growth during the second quarter was particularly strong and is expected to continue.
  • GMS rose almost 150% YoY, and guidance is predicting similar albeit lower growth rates for the upcoming quarters.
  • Rising amounts of buyers (new and repeat) should continue to drive growth.

Etsy (NASDAQ:ETSY) has seen some incredible growth attributable to the pandemic, but its niche position in the e-commerce sector opens up the door for long-term success. While the previous quarter is likely going to be one of the strongest quarters that Etsy will show in a while (aside from a potentially strong holiday season), it's only a matter of time until it starts posting consecutive quarters of this size and higher. As shares are down about 20% since the high, it could be a great time to buy the pullback ahead of further growth.

2Q growth was stellar as Etsy capitalized on the shift to e-commerce shopping, but also in part to the product mix that was emerging on the site. GMS soared to $2.7 billion, whereas it was barely more than $1 billion last year. Revenues are approaching the half-billion mark, and should eclipse that level on a strong Q4, but that could happen possibly as early as this current Q3.

Source: Etsy Investor Presentation

Etsy's growth in GMS and revenue was driven by an "influx of 18.7 million new buyers and reactivated buyers -those who haven’t purchased in a year or more" during the quarter. Yet while that amount of customers could be a quarterly high, Etsy is still seeing "encouraging data points in customer retention, frequency, and growth in lifetime value" that suggest that long-term customer growth will remain in play.

Etsy is taking targeted steps to ensure that that is the case. After witnessing that tremendous growth, Etsy is using personalized ads and recommendation feeds to work on "increasing the 30 day repeat purchase rate for new buyers by targeting buyers on and off site." This does come at a cost, and higher ad spending will offset revenue gains to a degree, but as Etsy has been and still is profitable, that's not

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