Here's Why Etsy Is a Great Stock for Beginner Investors

Etsy (ETSY -2.17%) has delivered tremendous financial and share price growth throughout the pandemic, and enriched investors' portfolios in the process. In this segment of Backstage Pass, recorded on Sept. 20, 2021, Fool contributor Rachel Warren shares with fellow Fool contributors Brian Withers and Toby Bordelon what drew her to the hot e-commerce stock as a new investor buying her first 10 companies. 

Brian Withers:  All right. We're going to move on to another e-commerce name. Toby, you want to cover Etsy?

Toby Bordelon: Here's another one that I'll go quickly through the basics of it, and then we'll get Rachel's thoughts on it. I think a lot of us probably have heard of this company. It's not one that I follow personally too closely. I'm not sure why. Maybe I just never bought shares myself, so I never like dove into it. But it's been a great company. Especially really recently, especially during the pandemic.

Etsy operates a global online marketplace where people buy and sell goods. That sounds familiar, but these are often handmade custom goods, vintage stuff, and that's really their competitive advantage, is more of a unique goods marketplace. It's a place where you find those kind of products. That's what drives buyers. You think I want something that's not generic, that's not manufactured by a big company that's handmade.

Etsy is probably going to the first place you go if you don't have like a local shop near you. You can find all kinds of stuff from sellers all over the world. Probably you can find what you're looking for, right? I mean, during the pandemic, one thing that they became famous for is, if you need a handmade like cloth mask, go to Etsy, you can find them all over the place, any kind you want. 

The fit, the shape, pattern, whatever you want, you can find someone who had it probably. That's backed off a little bit. I think we were talking earlier this year about, oh, this was the first-quarter where the sales of masks fell. But yeah, that was very good for them. They've also made acquisitions, kind of smart acquisitions that have expanded their footprint. Reverb, I think was a recent one. They sell music gear. Depop. It's like a social shopping app based out of London focusing on used clothes and accessories.

You can kind of see how they're expanding what they do, but still companies that are similar to them, that have a niche, where maybe people can't find -- a place people would go if they can't find what they're looking for on Amazon. Really fascinating company, and I love it as they expand that keep that niche focus they have. So they're not trying to you know necessarily compete directly with Amazon. Although, Amazon has tried to compete with them, and it didn't work well. Amazon Handmade was a brand for that. Yeah, great company.

I'm curious, let's hear from you. What attracted you to Etsy and what do you like about it?

Rachel Warren: It was definitely a continuation of my e-commerce kick. I think it's just a really interesting business to look at within the broader e-commerce space. This was another company that I looked at from the perspective of a consumer and an investor. I personally shop on Etsy all the time. It's a company that I had gotten to know because I used it often.

I do think it's interesting that so many of the things you find on this platform, you just wouldn't be able to find anywhere else. I was very excited by Etsy's decision to acquire Depop, I think there has been some concern, especially with some of these stocks that were super popular during the height of the pandemic in terms of, OK, is there going to be like a real pullback in those earnings? The company reported triple-digit revenue increases across almost all of its key metrics in 2020. 

With Depop, I think that that's a really interesting specialty market for it to expand to, because I was reading a recent report by ThredUp, which is another major retailer in that space. The clothing resale market alone is growing 11 times faster than traditional retail. It's supposed to hit a valuation of a little less than $80 billion by 2025. Depop grew its revenue by 100% in 2020. So, for example, that acquisition alone could reap serious dividends for Etsy.

For Etsy specifically, I found it to be a company that I think it operates in a really unique space that you just don't see a lot of other e-commerce sites operating in. I think that gives it a really clear advantage. I think because it's carved out this area of e-commerce for itself and maintained that space, I think that makes it a really interesting buy within that area. But I also love that it's not really content to sit in that area.

You've got this acquisition of Depop, that's now opening up a whole other side, but still within this very specific area with clothing resale that has enormous growth potential. I think it's got a lot of room left to grow, for sure.

Brian Withers: I really like Etsy as well and I'm a shareholder. A lot of what it does reminds me of what Shopify does as well, in that it's out to help individual entrepreneurs and small businesses grow their business beyond what they could do on their own. To me, the things that Etsy does align with making its artisans on its platform more successful.

I've really loved that not only its artisans more successful, but its customers to find the things that they want to, with 20 plus million things on the site, search is a little bit of a challenge for them, but they're working on the focus.

But I absolutely loved the niche they've carved out. These new recent acquisitions, I think are staying within its theme. I think it's going to play well with them both with a different age group as well as Elo7 is in Brazil. Expanding internationally, I think is a real plus. I think that's a great first stock to own.