Etsy (ETSY -0.37%) CEO Josh Silverman made quite the comment about his company's recent acquisition of e-commerce apparel reseller Depop earlier this month. He compared it to a service offered by PayPal (PYPL -1.85%). "We think Depop is potentially to Etsy like Venmo was to PayPal, a new way to shop for the new generation," Silverman explained to analysts on Etsy's second-quarter earnings call. 

On the surface, the $25 billion online marketplace for handmade and vintage goods does have similarities with the fintech juggernaut. While both are benefiting from long-term secular growth in e-commerce and digital payments, Silverman's comparison highlights a deeper resemblance. 

Here's why I believe this comment from Etsy's CEO is actually pretty accurate. 

Person scratching head in confusion.

Image source: Getty Images.

Focus on the younger generation 

A whopping 90% of Depop's 6 million combined active buyers and sellers are younger than 26. And while apparel is a big product category on Etsy's marketplace already, young consumers are adopting second-hand fashion faster than any other demographic. As a result, Depop has risen to become the 10th most visited shopping site in the U.S. among the Gen Z population. Because the second-hand apparel market in the U.S. is expected to double and reach $77 billion in five years, Etsy is using Depop to tap this rapidly growing industry. 

Venmo's users skew young as well. "Venmo originally started with college students as the original adopters and enthusiasts," Venmo Senior Vice President/General Manager Darrell Esch said during PayPal's 2021 investor day. He continued by saying that the mobile app "over-indexes toward millennials." As of the end of the most recent quarter, Venmo had roughly 75 million users, and it's the second most popular finance app on the Apple App Store. PayPal management expects Venmo to generate $900 million in revenue this year.

Community-driven approach 

Another commonality between Depop and Venmo (and related to the age of their user bases) deals with the social aspect of the two platforms. Depop's sellers are known to use various social media sites to drum up interest in their products. Some 154,000 people follow Depop on TikTok, which is not surprising given that it's a lucrative marketing channel for Depop sellers. 

Venmo's initial strategic priority centers on people who share social experiences together. Being able to seamlessly split costs with others is a by-product of that. And the feed on Venmo very much adds a sense of community to the entire experience. Again, this dynamic works because the users are so young. I can't see my mom or dad using an emoji to pay back their friends, which is what Venmo users do. 

Etsy's Depop and PayPal's Venmo attract youthful customers who aren't necessarily familiar with the main services provided by the parent organizations. I myself never used any of PayPal's services until after years of being an active Venmo user. This is a huge benefit though, as expanding the number of users is key to long-term growth. 

Two outstanding companies 

Getting new users, particularly younger ones, into Etsy's ecosystem via Depop increases the chance that these new customers will transact on Etsy's flagship platform. Similarly, Venmo can be viewed as a customer acquisition tool for PayPal. The hope for these businesses is to extract more value from these new users over time as they utilize the various products and services more. Eventually, growth in sales and profits will follow.

Not many businesses have the optionality that Etsy and PayPal do. The strength of their respective networks, whether it be e-commerce or digital payments, allows both companies to innovate and find new ways to serve their existing user base. And as time passes, the value for these stakeholders rises, which further propels growth. It's no wonder that both Etsy and PayPal have experienced massive stock-price appreciation over the years. 

Etsy's CEO was right. For his business, Depop has the makings to move the needle like Venmo is doing for PayPal. Shareholders should be optimistic about Etsy's prospects.