Although Etsy (ETSY 1.24%) only increased gross merchandise sales and revenue 3.5% and 5.2%, respectively, in Q1 2022 compared to the prior-year period, the online marketplace for special and creative goods is still finding ways to attract more users onto its platform.
The business finished the latest quarter with 7.7 million active sellers and 95.1 million active buyers, both of which were up from the year-ago period. The fact that Etsy continues to grow its user base, especially after the gains made during the depths of the pandemic, is a positive sign for shareholders.
Etsy's user base continues to grow
Throughout the pandemic, with people stuck at home and turning more to online shopping, it was common for Etsy to grow quarterly revenue in excess of 100%. Even more impressive is that at year-end 2021, the company almost tripled its seller base and more than doubled its buyer base from year-end 2019. Despite the easing of pandemic restrictions and the return of in-person shopping, Etsy keeps adding more users.
This is probably because the business, which generated $579 million of revenue in the first quarter, is the top destination for unique and handcrafted merchandise. In Oct. 2015, Amazon launched Amazon Handmade, a direct competitor to Etsy's marketplace. Even so, Etsy has still been able to thrive, increasing revenue and operating income 538% and 2,587%, respectively, from 2016 through 2021. The market opportunity that Etsy is penetrating might simply be too small for Amazon to make it a focal point and take seriously from a strategic perspective.
For a buyer, Etsy's value proposition is unmatched. A broad assortment of merchandise, ranging from categories like furniture and beauty products to apparel and arts and crafts, can be found on Etsy. In fact, 88% of buyers admitted finding items on the site that they can't find anywhere else. The growing trend of supporting small businesses, as well as finding items that people would be excited to share on social media, benefits Etsy.
The other side of the equation includes Etsy's 7.7 million sellers. While management's recent decision to hike the fee that sellers pay per transaction from 5% to 6.5% (implemented on April 11) might negatively impact the number of new sellers Etsy brings on in the current quarter, previous price increases haven't done much to stall growth. That's because these sellers, many of which are single entrepreneurs running small businesses, view Etsy as a mission-critical partner, giving them access to the tools, search discovery, and global customer base to succeed.
Despite slowing revenue growth and near-term headwinds, like inflation -- as well as consumers leaning toward spending for travel and experiences as opposed to physical goods -- I still think Etsy makes for a fine investment. The user base continues to grow, and that's a positive sign for the company's prospects.