The e-commerce industry continues to grow at an incredible pace, and there’s certainly no shortage of top-notch companies for investors to pick from and capitalize on these market trends. In this segment of Backstage Pass, recorded on Dec. 14, Fool.com contributors, Rachel Warren, Demitri Kalogeropoulos, and Asit Sharma discuss one of the top e-commerce stocks for investors to consider scooping up right now.[embedded content]
Rachel Warren: The stock I wanted to talk about is Etsy (NASDAQ:ETSY). This is a company I cover pretty frequently. I’m a shareholder of Etsy and for me, one of the industries that I think about top-of-mind when we talk about digital transformation or transformation, as we’re going to talk about here in a minute, can mean so many different things to so many different people and companies.
But one area I think of is e-commerce, because not only is it revolutionizing the way that people shop and the way people buy the daily goods that they’ve relied on forever. But it’s also changing the ability of people to change their financial future.
One of the things I love about Etsy is that it’s predicated on this business model of vintage and unique and specialty and handmade items where you have sellers going on the platform from all over the world to sell these specialty things that you just really can’t find anywhere else.
Not only does that create a lot of opportunity for small business owners, or maybe someone that are finally pursuing their side hustle or lifelong dream of monetizing a business idea they’ve had, but it also provides a really neat way as the consumer to find goods and items that you really can’t find elsewhere.
I love that aspect of Etsy’s business model. The company recently acquired Depop, which is a well-known platform where you can basically resell used clothing. It also acquired a company called Elo7, which is essentially been called the Etsy of Brazil so it’s been making a lot of moves to expand its business.
Shares of the company are up about 30% year-to-date, which actually surprised me. I thought it might be down because the stock has been a bit all over the place. We’ll see where it lands before January. This is another one of those companies that was hailed as a pandemic stock.
But I think the company has proven that it is much more than that. Just a quick look at a couple of metrics. In the first nine months of this year, the company’s revenue grew 45% compared to the first nine months of 2020. Marketplace revenue on the platform was also up by a similar amount, year-over-year net income. In the first nine months of 2021 was up 65%, compared to the same period in 2020.
Active sellers were up 102% year-over-year, in that nine-month period, while active buyers were up 40% year-over-year during the nine-month period. I am loving these figures, I’m loving the fact that not only are more people coming on to list whatever specialty item they want to sell, even as we’re entering a new hopefully phase in the pandemic, that people are also continuing to shop on the platform in droves.
I myself I’m a frequent user of Etsy for specialty jewelry. I love that I can go on there and there’s a jeweler found in Bulgaria that I love their items and I’ll buy things from them as an example, just really random things that you just can’t find anywhere else.
One final point here that I thought was really interesting. The company recently launched something called a Star Seller program, which the company said “defines what success looks like by celebrating and rewarding our top rated sellers.” It has improved several customer service metrics critical to the Etsy platform, such as on-time shipping and responsiveness so essentially boosting those incentives for sellers on the platform, which is something we’ve seen a lot with other e-commerce sellers as well.
“The company is also focused on transitioning buyers to our buy on Etsy app.” Management said, “We believe this is the best way to transact on Etsy, personalizing the on-boarding experience and helping buyers discover items and shops that align with their tastes and preferences.”
Making acquisitions, growing its top and bottom line at an astonishing rate, incentivizing sellers, and also growing shopping on its mobile app. These are all the things you want to be seen from an e-commerce platform like Etsy that’s operating in such a competitive space so one to watch for sure if you’re not already invested.
Demitri Kalogeropoulos: That’s great. I’ll just jump in real quick. I want to add two things, two reasons why I like this business too. Number one is they have a niche that they really dominate and it’s not just like they’re an e-commerce seller, their top six categories cover almost 90% of their sales in the top, I’ll just name the top two here, homewares and home furnishings and number two, like you mentioned, Rachel, jewelry and personal accessories.
When you think you could compare that to something like eBay, I follow eBay a lot and they’re more broad e-commerce retailer, but I don’t know the relevant rankings for them, but I’m sure it’s not those two.
I’m sure it’s probably consumer electronics, for example, which you can buy anywhere else. You can’t really duplicate their merchandise that they have available. The number two thing that really jumped out at me when I was looking through their stuff is their take rate, which is the fee that they can charge sellers, mostly is 18%, which just blows me away because eBay has been working really hard to get that number up to 10% over the last three years.
Rachel Warren: Wow.
Demitri Kalogeropoulos: Because I believe, obviously a lot of the stuff is more smaller brands and things like that to help a lot more hands-on service, but interesting. That gives you a good indication it can be pretty profitable.
Rachel Warren: That’s awesome.
Asit Sharma: Yeah. Really liking that discussion. Etsy shareholder here as well. I think they play a nice role in this growing gig economy. Very liberating for people who want to turn a side hobby into something more, or a passion into a business. I think it’s a great virtual opportunities stock in that sense. Their use of technology is really persuasive as well.
I’ll just quickly add here that they have done a really nice job of understanding how to push users to what users want to get to. Sounds easy but it’s one of the hardest things to do in e-commerce visual interface. If I’ve got certain aesthetic in mind, especially on a site like Etsy, how do I translate that idea that I’ve got into something that the platform itself will be able to then interpret and show me various versions of that? Etsy does such a good job with that and it’s not by accident.
They have spent a lot of money on their own artificial intelligence and machine learning, and over the years, they I think have typically become very skilled. If you’ve got a certain aesthetic, something that you want, a home furnishing or a certain type of table, just generally look and you’re instantly intrigued by, enamored by. I’ve enjoyed it as a shareholder, and I’ve dropped probably too much on that platform over the years [laughs] just because I think they’re so effective at what they do.
Rachel Warren: I feel you.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.