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This E-Commerce Stock Is on a Buying Spree

By Trevor Jennewine and Jose Najarro – Sep 23, 2021 at 9:53AM

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Etsy has made three important acquisitions in the last few years.

Etsy (ETSY -5.74%) certainly made a name for itself during the pandemic, when its sellers came together to make millions of face masks for consumers. But if that's all you know about Etsy, you're missing the big picture. This company has carved out its own niche in the rapidly growing e-commerce space. Specifically, the Etsy marketplace deals in handcrafted and artisan goods, helping buyers find items that can't be mass produced or commoditized.

In the last few years, Etsy has made several key acquisitions, including music gear marketplace Reverb, fashion resale platform Depop, and Elo7, which has been described as "the Etsy of Brazil." Collectively, these moves help Etsy maintain its image as a purveyor of unique and specialized goods.

In this Backstage Pass video, which aired on Sept. 14, Motley Fool contributor Jose Najarro shares his thoughts on Etsy, including the impact of its recent buying spree.

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Jose Najarro: This is more of that e-commerce for the unique user. Now that I remember, actually when I got married, I actually used Etsy to get something for my groomsmen, something personal. That seems to be one of the major players for Etsy. You can see a lot of unique stuff.

If you go to the website right now, you're going to get a lot of unique Halloween products, so that's where Etsy makes its uniqueness, the strengtheners of the company. If we take a quick look at how this company makes money, there's two main forms of revenue. First is the marketplace. The marketplace is your standard revenue. Here, your listing fees, your transaction fees, your payment platforms, offsite ads, and this makes about 75% of the total revenue for Etsy, and it's up 20% year over year.

The second portion is service revenue. Just recently, like I mentioned with JD.com, I believe, now when you select an item, the first few items are ones that are paid through advertisement. This is something that Etsy has recently started doing. Now service revenue, you can see advertising is a good portion of there, shipping labels and others, and this makes up about 25% and it's up 38% year over year.

We can see this company, this stock has definitely taken quite a hit in the past few days after earnings. It's pretty much that year-over-year revenue growth is not as strong as it was before. We can see the previous quarters, they were growing over 100% year-over-year growth. Now, they're growing at 13%. But remember, we are in different situations right now. Back then, everything seeing that e-commerce growth due to COVID, but for them to still see a year-over-year growth where many believed they were probably going to decrease over time, I think it's pretty impressive.

You can see revenue is up 23% year-over-year, and they are profitable when looking at adjusted EBITDA margins. One of my huge, I want to say, growth potentials for this company is going to be their overall acquisitions. In the past few quarters, Etsy has purchased three small companies. Reverb, which is more of the re-commerce and this is when you sell more like used items. Reverb is when you sell a lot of used or secondhand instruments, for example and it's mainly in the millennial or the Gen X customer base.

They recently just purchased Depop, which is more the sale of re-commerce, clothes and fashion. Again, this is the younger Gen Z and hitting U.K. and U.S. Then the other one is Elo7. This is mainly in Brazil and many people called it the "Etsy of Brazil" because this is that homemade, unique craft items. Etsy, right now, is making smart acquisitions. It really seems the target they are going for is definitely the younger generation and those that are selling second-hand items. It seems there's a strong market for items like this.

Trevor Jennewine owns shares of Etsy. The Motley Fool owns shares of and recommends Etsy and JD.com. The Motley Fool has a disclosure policy.

Stocks Mentioned

Etsy Stock Quote
Etsy
ETSY
$126.78 (-5.74%) $-7.72
JD.com Stock Quote
JD.com
JD
$58.32 (-3.40%) $-2.05

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