E-commerce has been on the rise over the last decade as people spend more and more of their money online. The proliferation of smartphones and better internet connectivity around the world has contributed to this boom as well.

But last year, the outbreak of COVID-19 further accelerated this consumer shift, leading to a surge in volumes for many e-commerce companies. Etsy (ETSY 1.66%) is one such example, and investors have seen its share price more than double in the past year.

The e-commerce company, which provides a marketplace for unique, handmade goods, has reported strong growth as more people rely on it to find sellers who offer bespoke items. Since its share price hit an all-time closing high of $244.58 back on March 1, the stock has tumbled over 30%. As the pandemic winds down in the U.S. and other regions, is Etsy a buy?

Man designing customized gifts.

Image source: Getty Images.

A unique selling proposition

Etsy calls itself a global marketplace for unique and creative goods, and I believe this is exactly what makes it stand apart from other e-commerce businesses. In a survey of customers who use Etsy's platform, 88% said the company offers items that are not found elsewhere. Customization is also a strong competitive edge as it allows buyers to search for or create something extra special. Searches for personalized items are about 20% more likely to result in a purchase decision, according to the company.

Popular influencers also market their unique collections on Etsy's platform, driving strong engagement with customers. These collections span a wide range of items from apparel and accessories to home and living. Repeat customers made up 90% of purchases in the first quarter, attesting to the power of a loyal customer base.

Etsy estimated that it has a huge market opportunity for "special" items that is worth upward of $100 billion. Its market share in this category is approximately 1%, leaving the company with vast opportunities to fuel future growth.

Robust operating and financial numbers

2020 was a solid year for Etsy as revenue doubled to $1.73 billion with gross merchandise value (GMV) reaching $10.28 billion. On the bottom line, net income surged 264% year over year as the company kept a lid on product development and administrative expenses.

This momentum has carried into the first quarter with GMV and revenue up 132% and 142% year over year, respectively. Profitability remained elevated too, though this was the final quarter of pre-pandemic comparisons.

Operating metrics were equally robust with active buyers up 91% year over year to 89.7 million, of which 36.4 million were repeat buyers. New buyers also saw a significant jump, doubling from 4.5 million to 9.6 million. On the other side of the equation, the number of active sellers also rose 70% year over year to 4.5 million, accompanied by a 34% year-over-year rise in GMS per seller to $2,483.

A right to win

Etsy has a growth strategy it calls "Right to Win" -- this initiative involves three core pillars: search and discovery, human connections, and a trusted brand. The first pillar involves improving search performance and reducing site loading time when users access the company's platform. When such pain points are eliminated, it can increase conversion rates and endear more consumers to its brand. Etsy can also personalize its marketplace for users to enhance their shopping experience, fine-tuning search results with machine learning to keep customers coming back for more.

The human element is stressed as another core pillar that helps to connect the company with its users. A storytelling approach and personal touch can work wonders in engaging customers and making them feel more connected to the platform. CEO Josh Silverman provided an example of these efforts in the latest earnings call: "[Q]uizzes are something we launched recently, and that allows a buyer to come and tell us more about their particular tastes and their particular interests in a light and fun way that not only makes that visit more engaging in session, but it gives us important information to help bring that buyer back more often to have more satisfying experiences in the future".   

The company is trading at a forward price-to-earnings ratio of 47. This may seem lofty at first sight, but it represents a sizable discount to the 75 times earnings the stock reached after the release of its full-year 2020 results. The stock may not be a screaming bargain, but with over 40 million new Etsy customers since the start of the pandemic, it's still worth a look for growth-hungry investors.