Etsy (ETSY -2.56%) has generated impressive gains since its IPO in 2015. It went public at $16 per share and it now trades around $127, so it could have turned a $1,000 investment into roughly $8,000 in just over seven years.

Etsy impressed the bulls by carving out a high-growth niche in custom and handmade products. Amazon (AMZN 2.11%) launched its own Handmade marketplace to challenge Etsy in 2015, but Etsy's first-mover's advantage, lower seller fees, and more lenient rules regarding self-promotion all enabled it to blossom in Amazon's shadow.

A person checks a smartphone outside.

Image source: Getty Images.

At the end of 2015, Etsy served 1.6 million active sellers and 24 million active buyers. By the end of the third quarter of 2022, it was serving 7.4 million active sellers and 94.1 million active buyers. However, it's still a lot smaller than Amazon, which has locked in over 200 million Prime members worldwide and owns the world's largest cloud infrastructure platform.

It might seem highly unlikely that Etsy, which has a market cap of $17 billion, could ever match Amazon's valuation of nearly $900 billion. But could Etsy actually catch up to its much larger rival by the end of the decade?

The tale of two e-commerce marketplaces

Between 2015 and 2021, Etsy's annual revenue rose at a compound annual growth rate (CAGR) of 43% to $2.3 billion. During those six years, Amazon's revenue grew at a CAGR of 28% and reached $469.8 billion.

Both companies experienced accelerating growth throughout the pandemic as more people shopped online. Etsy's growth was also boosted by its sales of handmade masks and its acquisitions of the musical instruments marketplace Reverb, the fashion resale marketplace Depop, and the Brazilian handmade marketplace Elo7. Amazon benefited from the simultaneous expansion of its online marketplace (which gained more third-party sellers) and the growth of its cloud business.

Etsy's profitability also improved as it expanded. It turned profitable on a GAAP (generally accepted accounting principles) basis in 2017, and its annual net income increased at a CAGR of 57% over the following four years and reached $493.5 million in 2021. Unlike Amazon, which still sells many products through its lower-margin first-party marketplace, Etsy only operates a higher-margin third-party marketplace -- which relies on its merchants to fulfill their own orders.

However, Amazon has also been expanding its own third-party marketplace and higher-margin Amazon Web Services (AWS) cloud business to offset that pressure and boost its profits. In addition, Etsy and Amazon both sell higher-margin ads that enable merchants to promote their listings. Between 2015 and 2021, Amazon's annual net income increased at a whopping CAGR of 96% (mainly driven by AWS) to reach $33.4 billion.

What will happen throughout the rest of the decade?

Etsy and Amazon have both grown rapidly, but the next few years could be tougher. Throughout 2022, both companies faced post-pandemic slowdowns as the lockdowns ended and brick-and-mortar stores reopened. Amazon also struggled with a gradual deceleration of its cloud business as companies reined in their spending to cope with the macro headwinds.

We should always take analysts' estimates with a grain of salt, since a global recession could easily render those forecasts obsolete, but this is what Wall Street currently expects from both companies over the next two years.

Company

2022

2023

2024

Etsy Revenue (Estimated)

$2.51B

$2.75B

$3.14B

Growth (YOY)

8%

10%

14%

Amazon Revenue (Estimated)

$510.74B

$564.04B

$645.15B

Growth (YOY)

9%

10%

14%

Data source: S&P Global. YOY = Year-over-year.

Those estimates imply Etsy will continue growing, but it won't come anywhere close to matching its feverish growth rates from 2015 to 2021. In fact, it will probably grow at a similar rate as Amazon, which is on track to generate more than 200 times as much revenue as Etsy this year.

That slower growth explains why Etsy made three major acquisitions, two of which -- Reverb and Depop -- diversified its business away from handmade products over the past three years. If Etsy generates $3.14 billion in revenue in 2024, then rises at a decent CAGR of 15% over the following six years, its revenue could still more than double to $7.4 billion in 2030.

Assuming that Etsy still trades at about seven times sales, it could be worth around $50 billion by the final year. But if Amazon grows its annual revenue at a CAGR of just 10% between 2022 and 2030, it could generate $1.1 trillion in revenue by the end of the decade. If it trades at just two times its trailing sales by then, it could easily become a $2 trillion company.

But look beyond the market caps

Simply put, there's not much of a chance for Etsy to come anywhere close to matching Amazon's market cap within the next eight years. However, there's still a strong chance that Etsy's stock will double by 2030 if its marketplace continues to attract more sellers and buyers at a steady rate. As such, it might still be a compelling buy for long-term investors.