Etsy Is Investing in Itself and Its Stock Could Benefit

Powered by real-time data analytics and a smart search engine platform, Etsy (ETSY -3.03%) is continuing to give consumers just what they're looking for. In this Motley Fool Live segment from "The Virtual Opportunities Show," recorded on April 5, Fool.com contributor Jose Najarro breaks down the compelling new solutions that are helping Etsy grow. 

Jose Najarro: First, we can see Etsy right now it's down about 35 percent from its all-time highs. Obviously, growth stocks have definitely taken quite a hit. But we can see Etsy right now, they are positive in cash flow from operations and trailing 12 months, about 650 million. They also have a nice amount of balance sheets. They have built up a nice amount of debt, but they had done a few acquisitions recently that have helped them grow in both their international and just the solutions that they have.

If we take a quick look for those not familiar with Etsy, many people think about it as the unique consumer store where you're going to go to Etsy to find something handcrafted, handmade, but Etsy has also brought more products outside of that. The great thing is if you're going to Etsy, I think you most likely already know you're going to buy something. We're going to see from some of the information that they have. That they have great consumer percentage numbers. We can see, they start off with first strategic discount, they might send you an email, a text, "Hey, you can take a quick look at this product." Then you go to their homepage to explore, and they do everything from pre-purchase to post-purchase for the customer. If we take a quick look, I think one of the highlights is how much they have been paying in data information, real-time data analytics, where their search investments is paying off, 95 percent of search purchases are made from the first page of search. Usually, if you're going to Etsy and you're looking to buy something, you're most likely not going to the second page, everything you need is usually going to be on the first page. That has been done through the amount of investment they have made with this Xwalk, is what they call their search engine platform.

Note some other things that Etsy, we're seeing a lot of companies move into the video platform. Now, trying to grab consumers' attention is no longer just having a pretty cool picture. Now consumers want to know more about the product that they're buying and Etsy is doing things like allowing sellers to have videos uploaded with the product that they're selling. They just started this in December 31st of 2021 and since then, they have had about 13 million videos uploaded. Again, this is another way of how they're continuing to invest in the company to make a better consumer experience and also allow sellers to have more solutions to be able to sell. They also help Etsy sellers grow. We can see active sellers continue to see a nice increase in 2021, they had about 5.3 million active sellers compared to 4.1 million in 2020 and 2.5 million in 2019.

Some recent things, we saw that they are positive in cash flow from operations. This is, unfortunately, obviously, you're going to get some negative feedback from the sellers. But starting April 11th, that's about six days from now, they're going to start increasing the amount of fees they take from transactions. From 5 percent to 6.5 percent. It might seem a little bit to, I guess, investors, but there has been a lot of backlash. Obviously, as a seller, you just don't want to lose on that gross profit. On some negative side, there have been some groups on Reddit which are saying that they're going to close their Etsy stores for the next few weeks because Etsy is going with this. But at the same time, like I mentioned, Etsy is investing very strongly in all the solutions that they have for their sellers. We can just see revenue growth, positive, and adjusted EBITDA, and their gross merchandise sales also continue to grow quarter over quarter.

The final thing is, Etsy just recently started doing Etsy ads and that's also growing. This is their incremental revenue growth from last Quarter 4 of 2021 compared to Quarter 4 of 2020. Huge growth from gross merchandise sales, that means more sellers, more buyers. But they're are also seeing the increase of Etsy ads, this is brand new to the platform, which is also showing some incremental growth there. Then Depop and Elo7, which are recent acquisitions. It's not a company that's growing through acquisitions, it's a company that's growing from its sellers and the new solutions that it has. Those are pretty much what I have for Etsy. It's definitely a pretty interesting company, one I don't own, but one that I'm definitely keeping in my radar right now.