I respectfully disagree with your viewpoint that special occasions translate to recurring revenue. Yes, occasions are by nature recurring - but does that make the source of purchase “recurring”?
On special occasions, we have a buffet of options to choose gifts from - one of which is Etsy. Even if Etsy is the tastiest offer on the buffet - at the end of the day, it is just that - an option in the buffet.
On the other hand, true recurring revenue generators don’t present themselves on the buffet. Quite the opposite, the food will get delivered to you regardless. And as we’ve witnessed over this pandemic - you usually NEED that food to get delivered to you to continue living your life.
A small portion of Etsy’s revenue may be recurring - but right now it’s not much more than that.
I’m currently long ETSY, but reconsidering after reading this discussion. this is mainly based on Saul’s observation about recurring vs. non recurring purchases, which I hadnt thought of before, and it is something I Tthink needs to be looked at further.
I purchased Etsy earlier this year, and it is one of my larger holdings (but only 4%, I am still consolidating to a more concentrated portfolio so I have too many stocks at the moment. I did this based on the Fool, and some of the people here, plus my own experience - I just opened up a (very small) wood working shop on Etsy, and we bought items off Etsy for the first time a month or so ago.
We bought a memento for an RV trip we took this summer to visit my folks due to CV-19 so we bought an RV ornament for Christmas, customized for this trip. We also bought one or two other items on Etsy, but neither of them will be repeat purchases, they were for unique, one time only items for a specific occasion.
(as for my shop, there are so many competitors that it is hard to get noticed without advertising, etc (and honestly, it is more a hobby and to see if there is a market there). I see ETSY going more the way of the larger stores, etc, kinda like eBay or even Amazon, where larger stores will get the better search results, etc. this may drive away the smaller boutique stores eventually, removing some of the charm from the web site… I am not sure though - a competitor will be needed of course)
to summarize, my experience is like Saul said - non repeat business. We will look on there some times but we usually just go to AMZN, and I dont see us buying much off Etsy. I am up ~15% or so on the stock this year, but am thinking of selling it before the next quarter, once I ID a better place to put my money.
Etsy may not have recurring revenue, but it has a huge assortment of products that cater to all types of wants/needs and it’s only getting bigger as they attract more sellers (Up 40%+ YoY)
As someone noted, their repeat / habitual buyers have grown a ton, 70% YoY for 2+ purchases in the TTM and 104% YoY for 6+ purchases. GMS per active buyer is also increasing, 8.2% YoY in the most recent quarter and 10% YoY in a 2-year growth cohort.
Also, it looks like less than 25% of their active buyers are new/reactivated, meaning the majority of their revenue come from “recurring customers.” It might not be recurring revenue like a SaaS business, but it might be a recurring destination.
Plus Etsy Ads could theoretically be considered recurring revenue as it serves a function for sellers to promote their products. As Etsy gains more scale, services will continue to increase when more buyers adopt Etsy Ads and Ads make up about 25% of Etsy’s total revenue now.
COVID has brought a tremendous amount of awareness to Etsy and while it’s obviously going to slow down once COVID is over, Etsy has and will continue to take more market share from other websites that sell similar assortments. In many ways, Etsy is becoming more and more like an “Everything Store” which is what Amazon is. Plus, their < $20 B market cap is great as there is tons of room to grow and their multiple is significantly lower than other major ecommerce players which means room for multiple expansion.
I agree with Saul that it’s not recurring in terms of buying toiler paper or toothpaste once it’s over. But if Etsy has become a place to go for shoppers to buy for example a birthday gift, u go there for a gift for ur brother, for ur sister, for ur wife etc. So, it’s recurring in terms of buying from any seller on Etsy’s platform for specific type of purchase. And considering the latest earning call the amount of habitual buyers is growing strongly meaning that the platform flywheel working better and better and this is what we want to see in a platform type of business.
On the other hand since Etsy has platform model its gross margins are in 70+ and Amazon’s e-commerce margins are single to double digits - hardly comparable to Etsy’s. And we like high gross margins in our companies
I’ve opened a small position in Etsy and trying to learn more about the business.
Smallish market cap - only 18 Billion with an estimated TAM of 100 Billion, could even be as high as 1 Trillion.
Defensible Niche - it’s mission is to keep commerce human. Etsy is continuing to establish itself as the dominant player in the niche and handcrafted market. It is the anti-amazon in that its sellers are largely individuals making things out of their house. If you dislike the dark lord dominating the universe (Amazon), buy Etsy and support the little guy.
Lack of competition - amazon, e-bay, and shopify are not focused on custom products, this allows Etsy to dominate its niche.
Strong and recurring ad revenue - Etsy ads offers advertising on third party websites in exchange for 15% of revenue. The seller benefits from having a large presence in Etsy doing the advertising. Etsy can justify the large fee because the seller’s products are unique and the price is not driven by low-profit competition. They are not the cheap, made-in-China products that are seen all over shopify, amazon.com, and eBay.
Pandemic tailwind - the majority of folks who bought a mask came back within a month and bought something else. Brand awareness is on the rise. It’s the right company at the right time.
High Gross Margins - in the 70’s.
Optionality - Etsy is expanding its categories and it acquired Reverb last year. I see omni- channel potential.
International expansion- pre-pandemic they were focused on 6 core countries, now they have changed the focus to 40 plus countries.
Strong forecast -
Etsy has forecasted for up to $513 million in revenues in Q4, an increase of 12% from Q3.
This year I have bought 35 items from Etsy from birthday, graduation and Christmas presents to lockdown activities like a puzzle. Last year I bought 29 items. The platform is easy to use, you can save items which is nice for when a birthday, wedding, birth, graduation, anniversary etc. comes up you can look at your saved items to see if there is something that would work. Communication with the sellers/artists is also very easy and in my experience they respond within 24 hours. The platform is using AI to try and direct you to items it thinks would appeal to you based on your previous searches/purchases. The pandemic has been a huge tailwind but I think the exposure will help them grow market share.
AMZN is a $1.6 T company and ETSY is $18 B. So Amazon is almost 100 times bigger than Etsy. So it’s normal that you mainly go to Amazon and just occasionally go to Etsy. There still is enough room for Etsy to grow and because of its much smaller size, it should grow faster than Amazon. I own both. Etsy stock, which I bought at $29, appreciated much faster.
Saul,
I have a 7% position in Etsy. I am not concerned about the non-repeat nature of the products sold on that platform. The reason it does not concern me is that I am quite certain that the customers make repetitive purchases. The very fact that the products are quite unique and many artisans offer personalization brings customers back over and over again. It is more or less the inverse of Amazon. For many people the ability to buy a product that speaks specifically to the intended recipient, be it for one’s own home or a gift for a friend or loved one, acts as the magnet that draws them back for repeat purchases. At least that’s the way I see it. I’m positive that Etsy has a CRM that keeps track of who buys what and how often they come back. I don’t know if they provide any public reporting on it.
I think you can safely assume that Etsy is capturing a LOT of information about those who visit the site, whether they buy or not. Some of this can be aggregated and reported (e.g., number of unique visitors, time spent on the platform, spend per customer, average visits per month per customer, number of merchants, spend per transaction, etc.) and may help us to understand how the business is growing. But you can also safely assume that they are gathering a lot of information about individuals visiting the site / individual customers, including detailed information about the sorts of things they view, how much time they spend viewing specific things, what factors in a page affect choices and viewing time, etc. This sort of data will drive their ability to tailor presentation of merchandise to the specific customer in the future, as well as allow targeted advertising on their platform (and elsewhere).
Let me illustrate. Let’s say I buy a handmade fountain pen on the site. I look at a bunch of them before I do so. While each handmade pen is unique, many are quite similar. The algorithm can learn what exactly I like in a fountain pen. But part of what sets the pens apart from one another is how they are shown on the site. Are they being used by an attractive individual? Are they shown in a setting that looks prosperous / affluent? Are they depicted in a cool / retro fashion? Are they being used by someone of my own race and gender? Etc, etc. The algorithms will not just track what sells and what depictions are particularly effective, but will also be able to tell what sells and what depictions are particularly effective at the individual customer level. That is very useful (and valuable) information! If you sell your handmade fountain pens on Etsy, wouldn’t you be willing to pay a little more to have them displayed most appropriately at the individual customer level? And if you are selling various other things, whether on Etsy or on another platform, wouldn’t you want to know what had worked to influence a specific customer to make a purchase in the past? This might seem a bit of a stretch, but I could see the ways you behave on Etsy being used by a business as seemingly unrelated as a car dealership to tailor how they interact with you.
Regards,
Dorset, no position in Etsy, but talking myself into it.
I don’t have a technical analysis to offer the group but all my female friends, coworkers and family members are obsessed with Etsy and buy things from there all the time for gifts, birthday party decorations, house decorations, etc. It’s like the old story of look at what the women are buying around you and buy stock in that company (the Peter Lynch pantyhose story). I bought Etsy at $40 and plan on holding long term. Just like I bought Pintrest at a lower price and will be holding. The women’s credit cards are speaking loud and clear! lol
The blog highlights the notable rises in searches for goods, such as “1,183% increase in searches on Etsy for cocktail DIY kits” and “117% increase in searches on Etsy for Valentine’s Day decor.” This might explain part of the reason why the stock is up ~13%, as investors might be implying that the rise in traffic may mirror the upcoming results from their Q4.
Another qualitative observation is Etsy’s interest over time over the past few years (https://trends.google.com/trends/explore?date=today%205-y&am…). Notice the difference in the holiday season’s bump for this year. Perhaps this isn’t too surprising - we all know the extent of e-commerce acceleration resulting from Covid. Regardless, these are encouraging observations.
Lastly, an anecdotal observation. A few friends of mine started an Etsy shop over the past few months. It has been intriguing understanding the sellers’ ecosystem side of the business. For example, they’ve noticed how paying for ads (i.e. $1 p/day) results in higher traffic for their store. This represents a trivial yet compelling potential for recurring revenue generation.
So, what does this mean for the discussion generated in this thread?
(1) One of the points discussed was Etsy’s sequential growth. They guided for a midpoint of $495m Q4 revenue, which would represent +9.6% growth from Q3. This compares to 36.4% and 33.0% sequential revenue growth from Q3 to Q4 in 2019 and 2018 respectively. While their press release doesn’t mention any financial metrics, it might be a clue from management for a big beat coming.
(2) We also discussed Etsy’s ability to generate recurring revenue. We did not get any metrics on that from this announcement. Etsy might be laser focused on executing on their core business from the pandemic’s tailwind (especially on their key Q4); however, sooner or later they may need to roll out new features to continue growing robustly. This will be a key area to monitor on their next earnings call. It’s all good and well to see increased traffic, but as Saul indicates “You just can’t keep growing at 40% selling things.”
