Although Etsy (ETSY 0.34%) reported fourth-quarter 2021 financial results that beat Wall Street's estimates on both the top and bottom lines, the stock has lost 40% of its value this year. Investors are concerned that weaker-than-expected revenue guidance of $577.5 million (at the midpoint) for the first quarter signals a more mature business and the end of the monster gains achieved as a result of the pandemic.
But it's best to zoom out and focus on Etsy's long-term potential rather than any particular quarter's results. Shareholders shouldn't worry about slowing revenue growth for this top e-commerce stock. Instead, they should be excited about the massive $2 trillion opportunity ahead.
Etsy is staring at a long runway for growth
While Etsy has users in dozens of different countries, the management team considers seven markets -- the U.S., U.K., Germany, Canada, Australia, France, and India -- as the company's core geographies. Etsy sees these countries as major growth opportunities and is therefore investing in improved product development and marketing capabilities.
According to management, these seven markets combined represent $2 trillion in total retail volume in the product categories Etsy offers on its marketplace. These include things like home furnishings, jewelry, craft supplies, apparel, paper supplies, and beauty products. Of this $2 trillion, about $466 billion is online, which means that Etsy's 2021 gross merchandise sales (GMS) volume of $13.5 billion represents just 2.9% of its relevant e-commerce opportunity today.
eMarketer predicts that by 2025, e-commerce sales will account for almost 25% of global retail volume, from just under 20% today. This trend results in an expanding addressable market for Etsy. Management points out that in recent years, Etsy's GMS growth has outpaced broader e-commerce growth, a clear sign of the booming success of the platform.
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The company's 7.5 million active sellers (up 72.3% year over year) and 96.3 million active buyers (up 17.6% year over year) are proof that consumers are increasingly looking to shop online for special, unique, and handcrafted goods -- the exact types of products that Etsy specializes in offering. Directing investment dollars to drive conversion rate and frequency improvements should help support higher levels of activity.
With strategic acquisitions of complementary marketplaces, like Reverb for musical instruments, Depop for used clothing, and Elo7 (known as the Etsy of Brazil), the company is set up to gain users and grow GMS in the decade ahead. Pursuing other core geographies and product categories adds upside. This means a greater market share of that $466 billion online opportunity.
It's crazy to think that Etsy's triple-digit revenue growth in 2020 can continue in the years ahead. The pandemic sparked e-commerce sales, however, and this business is set to continue benefiting far into the future. Management has its sights on further penetrating the gargantuan global retail market. Investors should focus on this as well.
