In an e-commerce universe where essentially half of all U.S. sales go to one super-powered player, it's more than a little impressive that Etsy (NASDAQ:ETSY) has held onto its crown as the leading marketplace for the handmade, homemade, and generally crafty. Yet it has, and based on its latest quarterly report, it's continuing to thrive.
In this segment from MarketFoolery, host Chris Hill and Motley Fool Director of Small-Cap Research Bill Mann reflect on just how great its metrics were, how it has avoided being steamrollered by Amazon and others, and why the more than $9-a-share jump the stock took after the earnings report came out will be extra special for some investors.
A full transcript follows the video.
This video was recorded on Feb. 26, 2019.
Chris Hill: Let's move on to Etsy.
Bill Mann: So much happier!
Hill: Fourth quarter profit and revenue came in higher than expected. Everything is up Etsy. Users are up, sellers are up, stock up 13% this morning. This thing's a monster.
Mann: It is a monster! David Gardner was pointing out that David Kretzmann recommended Etsy back in 2016 at $13 a share. It went down below $10. With today's rise, we're basically getting the same amount as the stock was when David recommended it, which in David Gardner's world is called a spiffy pop.
Hill: 400% ago.
Mann: Yeah! It's a great company! It really is. They've done a really good job putting up their moats. If you're a small business person, a craft person, Etsy is where you go. I didn't love this business when it first came out. It seemed to me like a niche business. But it's grown. It's now an $8 billion market cap. Absolutely wonderful quarter, and well-deserved. They've executed very well.
Hill: It reminds me a little bit of late 1990s eBay. eBay, when it was just in the auction business and getting some traction, we saw Amazon announce their auction business, Yahoo, which was much bigger than eBay at the time, announcing their auction business. And there were some people saying, "OK, eBay had a nice run, but now the big kids are showing up here." But because of that virtuous cycle of, in the auction business, if you're selling something, you want to go where the most buyers are; if you're buying something, you want to go where the most sellers are. It seems like this is playing out with Etsy.
Mann: eBay is such a good call. That's exactly what it is. When eBay came out, in a lot of ways, the coverage about eBay was, "Oh, isn't this cute?" And Etsy was exactly the same. These are big businesses, but they were really treated as, "Oh, isn't this cute?" And I tell you what, $8 billion in market cap is, in fact, pretty cute. [laughs]
Hill: [laughs] Yeah!
Mann: Well done, honestly! Again, as someone who was a skeptic. I always thought the management was great, but a skeptic as to how this business might scale. They've really, really done well. My hat's off to them.
Hill: Etsy is a little deceptive in some ways because it's not like they're a physical location, so part of their quarterly announcement is, "Here's where we're expanding." If you're not shopping on Etsy, if you've never bought anything on there, it's really easy to miss. And, as you said, the one-sentence description of Etsy usually involves the word "craft."
Mann: Crafts! Right! [laughs] Yeah, things that are done in Pawnee, Indiana. Yeah, exactly. "Crafts" just doesn't seem like the kind of thing that scales.
Hill: Or is sexy. No investor is like, "Let me tell you, I have a hot tip for you. It's an online crafts business."
Mann: Are they e-crafts? SaaS crafts? No, they're just Kountry and things like that. But, yeah, 46% growth in revenues is nothing to sneeze at. That is a lot of crafts and some other things that they're selling.