Why Etsy Investors Shouldn't Sweat Slowing Growth

Etsy (ETSY 0.49%) has proved that it can both gain new users and retain new users. In this clip from "3 Minute Stocks Updates" on Motley Fool Live, recorded on March 2, Motley Fool contributors Brian Withers and Toby Bordelon discuss Etsy's financials along with its impressive increase in customers, and speculate what the future might look like for the e-commerce company.

Brian Withers: We're wrapping up here with the last stock called Etsy. The E-T-S-Y ticker is the same spelling as the company. As with many e-commerce companies reporting earnings, Etsy's growth is slowing. But to me, it's more important that the company has grown its fan base over the coronavirus, and this hand-crafted marketplace did just that. Let's look at some slides on how the company has done. This is their sales on their platforms for the last couple of years. You can see Q4 2019 here to Q4 2021 more than doubled, 154% over a two-year period is absolutely amazing. You can see here the 14%, 12%, 12%. It's obviously slowing growth but, on top of these massive percentage gains, I'm not really worried about the slowing growth and let me tell you why. It's because the users love Etsy. Here, on the right-hand side, you can see the number of active buyers on the platform has doubled from 46 million to 90 million over the period. The existing customers are on the bottom. Reactivated means after they've been idle for more than a year, they've come back to purchase. Then, look at these new customers coming on the platform. These ones in 2020 aren't coming for the coronavirus masks which we saw in 2020, so that's pretty exciting. The company shares even more insights into its member base and let me show you. Here's the active buyer numbers. You can see over the last five years, they've tripled. But, what's really exciting is gross merchandise sales per active buyer has gone up every single quarter. Look at that, just 16% year-over-year in the most recent quarter. More members buying more things on the platform. That's exciting. A couple of more slides. Repeat buyers who buy more than two purchase days in a year is up 121% over a two-year period, so doubled. Then, habitual buyers, which have six or more purchase days in the year, is up an incredible triple over the past two years. I'm really excited that Etsy has gained a ton of new buyers and it seems those buyers are sticking around.

Toby Bordelon: Brian, with growth slowing a little bit, what does the future look like for Etsy? Are we ready to say growth is done or is there a path for continued revenue and cash growth long-term in the future? Why do you think acquisition may be the best path forward?

Withers: Yes. They've done both and I think there's absolutely opportunity for both and let me explain why. One of the things that they are doing is, every single point along the buyer's journey, they're trying to make it better. I remember back in the day when Amazon (AMZN -1.65%) was first starting out, you tried to search and you just got a bunch of crap and the products weren't necessarily there, the selection wasn't necessarily there. But, Amazon improved every single quarter and it's just become a go-to now that people just love and trust. That's what Etsy is doing all along the cycle, making it easier to search, find things, buy, and then get informed about how the products are being delivered to your door. They've done really well with their acquisitions. Reverb, there on the left, is the music platform that they bought a couple of years ago, almost a billion dollars in gross merchandise sales over the year. Depop is the used clothing platform. They saw almost $300 million in sales for the partial year. Elo7, there on the right, is essentially Etsy of Brazil, only $32 million in gross merchandise sales. But if you look at that buyer improvement process that they are doing, they can apply if this family of brands that they have accelerate the growth of each one of these as well as the main Etsy platform. I think they have plenty of levers to grow long term.