It’s no secret that ecommerce has benefited from the strange environment that is 2020. So of course tempting to jump on the incredible trend with SHOP or ETSY, or one or more of many others who had incredible Q2 growth numbers. The immediate counter-thought: is this just a temporary spike due to Covid? No one is buying things in stores right now, if they can help it.
Where SHOP is a $120b company, ETSY is a $17b company, and their revenue growth actually outpaced SHOP’s in Q2 (although SHOP has almost twice as much revenue, so of course it deserves a somewhat larger market cap). After guiding for 30% growth this year pre-covid, in May ETSY guided for 340m for Q2, which would have been a 90% YoY increase. But when they reported Q2 on August 5th, revenue was actually 429m – a 137% increase. Then they promptly guided for 426m in Q3, a 115% increase (which they’ll surely beat). So it appears revenue will be almost double what they had expected this year (although wisely they’re not giving full year guidance).
A reasonable question at this point would be: what’s the catch? Why is the market not buying this and bidding Etsy up? Perhaps because Q3 guidance is basically flat with Q2? Or maybe it has more to do with what Etsy was, and how it was growing, before Covid accelerated things. Personally what tempers my enthusiasm is wondering what Etsy’s special sauce really is.
Is the TAM too big, or too small? Whereas SHOP provides a service, ETSY is a marketplace (like Amazon). You can’t “go to Shopify” and search for your item like you can on Amazon…or Etsy. It’s kind of a virtuous cycle: more people “go to Etsy” to search for whatever, Etsy’s customers (merchants) succeed because of those people shopping on Etsy, and Etsy succeeds. The problem is, that’s exactly how Amazon works. Etsy can’t out-do Amazon at Amazon’s game, so what makes Etsy different?
This is where I feel Etsy management missteps. They seem to say Etsy is selling something different, and they consider their sellers/merchants to be artisans and artists and craftspeople. And then they say their TAM (which they estimated last year as 100b) is now over 1 trillion, and they seem to imply that it includes anything that can be sold online. Can’t have it both ways. And that’s why I’m struggling with the investment. What makes Etsy special? What makes the sellers different? What buyers do they attract?
Like SHOP, with ETSY it’s all about their merchants. If we believe Etsy’s sellers / merchants will do well, we can expect that Etsy’s revenue will recur, and grow.
I welcome thoughts from others. I would be especially interested to know if anyone here is an Etsy seller (aka merchant, artisan).
long ETSY with a 2% position for now