Etsy's (ETSY -1.75%) performance has dropped from its triple-digit pandemic highs, but it's still impressive. As part of its third-quarter 2021 results announced last week, revenue increased 18%. That's a long way from the 102% it posted in last year's third quarter, but it's still on top of it. This demonstrates that Etsy is more than a pandemic phenomenon -- it has actual staying power, and investors can expect more from it going forward.

Most of the report was solid, but there was one metric that I'm really excited about, which is gross merchandise volume growth for active buyers.

Person cutting fabric at a table with a laptop computer.

Image source: Getty Images.

A concept that's picking up speed

Etsy became a household name last year as customers stocked up on the company's handmade masks, but enthusiastic customers are sticking around for all sorts of other fun stuff. Etsy's platform for creative, handmade goods gives it an edge in the competitive e-commerce space, and it keeps expanding its user base and sold merchandise.

Gross merchandise volume increased 17% year over year in Q3 to $3.1 billion, or 24% for nonmask merchandise. Again, this is a big drop from last year's 101% in the same period, but it's sequential growth.

On par with that, active and habitual buyers are still growing, but at lower rates.

Category Number, Q3 2021 Q3 YOY growth Number, Q2 2021  Q2 YOY growth
Active buyers 89.4 million 30% 89.6 million 51%
Habitual buyers 8 million 65% 7.9 million 115%

Data source: Etsy earnings reports. YOY =year over year. 

Etsy added 7 million new buyers in the quarter, down from 9.6 million the same time last year but still above pre-pandemic levels. Habitual buyers, or those who made purchases on six or more days and spent more than $200 in the past 12 months, continue to be the company's largest-growing buying segment.

Why active buyers are important

Gross merchandise volume per active buyer increased 20% in the third quarter. That's a similar measurement to a retail company's comparable sales, because it demonstrates growth across its existing customer base, and it tells us how well a company is growing sales organically. In Etsy's case, it's doing well. 

The company is putting a lot of money into marketing, but its core customer base is doing a lot of the heavy lifting. As more new customers become comfortable with the idea of using Etsy's talented, creative makers, revenue is automatic as they convert and become regular shoppers. Marketing spend as a percentage of revenue decreased year over year in Q3 and was at its lowest in the past five quarters. The active buyers who love the company will drive its future growth, so a growing number here is a huge positive for the company's position and prospects.

Why Etsy stock looks good right now

Etsy stock was a big winner in 2020, but it's doing just fine in 2021, gaining 42% year to date. Its premium is slightly elevated at 75 times trailing 12 month earnings, as earnings were down a bit in Q3 due to acquisition-related costs. (Etsy acquired Brazilian e-commerce Elo-7 and European refashion company Depop this year.)

Between its growing base of active customers, new businesses, and upgrades to its platform, Etsy has a long runway of growth ahead, and investors can still reap gains for many years.