Despite Rising Competition, Etsy Inc Is Here to Stay
Looking for that perfect gift or accessory, personalized with your initials and that extra pocket or clasp that you always wished similar products would feature? Etsy(NASDAQ: ETSY)has you covered.
Few companies are as embedded in the customization super trend asEtsy. The craft and artisan goods marketplace has built an entire business model around consumers' desire for unique, handcrafted products. In this clip from Industry Focus: Consumer Goods, Motley Fool analysts Vincent Shen and Asit Sharma examine the increasing competition in this space, where Etsy currently stands, and its prospects looking forward.
A full transcript follows the video.
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This podcast was recorded on Oct. 4, 2016.
Vincent Shen: This isa really good example. The company isEtsy. It'ssmaller than the other two companies we'vefocused on so far, butI think they're a perfect example in terms of howcustomized or personalized products arebecoming so popular. Etsy,if you're not familiar with it, is anonline marketplace for handmadecraft artisan goods. The company went public in April of 2015. That first day of tradingwas, arguably, its best day. The price, from $16 per share, jumped up to $30 in the first day of trading. With some newcompetition, which we'll talk about quickly,the stock has already had a mini boom-bust period in the ensuing year and a half. It'scurrently trading back around $15, but it topped out at $30, was at some point as low as $6 to $7 per shareearlier in 2016.
Thecompany has 1.7 million active sellers, 26.1 millionactive buyers, by farthe biggest platform of its kind for handmade crafted goods. What do you think about the company, Asit?
Asit Sharma:I think the company is an interestinglong-term buy. Everyone hadconcerns about Etsy post-IPO, becauseit had such a high marketing spend relative to its sales. Folks were worried aboutAmazon.com's (NASDAQ: AMZN)Handmade marketplacecoming into competition with Etsy. Also, there was a concern that, is there really a market for this long term? The craft and artisan movement, is that a fleeting fad?
I think what Etsy has shown usrecently with its results is that, No. 1they are able to control their spend. They'removing their marketing spend more to a digital-based marketing. So, we'restarting to see a little bit better pop in gross margins and in the bottom line. Also, Amazon.com, for all its might, doesn't seem to have impacted Etsy's business so far. I'll put thatback to you in just a second, Vince. Thirdly,the company is growing its global sales at a great clip. This last quarter, they grewinternational sales by 57%. This indicates thatthey can continue to expand globally. If you look atEurope, Asia, and Africa,where some of their business is starting to spread,there is a lot of demand for the same kind of artisan materials andcustomized materials that we're enjoying here in the United States.
Shen:Yeah, absolutely. On the Amazon Handmade side, for a company that'sobviously proving themselves to be very strong in this e-commerce space, this model, they too are expanding abroad. I think,initially, they were in just a handful of European countries. Now, they'respreading across the entire continent. Amazon Handmade is still a much smaller platform, though. They areat the point where they might have about,the last number I found was 500,000 product listings, whereas with Etsy, it's a much bigger number, in the millions. When youtake all of that into account, I think, overall, this trend is thekind of situation where the tide lifts all the ships.
Obviously,Amazon is not a competitor I would ever underestimate in this space, and Etsy should be aware ofwhat the company is doing and how it might impact their business. But,overall, this trend is something thatwill continue to grow, and as Etsy finds its footing, can decrease marketing, for example, as a percentage of its revenue. They have ... 81% of the grossmerchandise sales in 2015 came from repeat purchases. Shoppers areobviously building some of that loyalty that you mentioned, Asit. And they like what they see. Ipersonally think that Etsy is really attractive marketplace. My experiences shopping there have beenvery positive. Amazon is definitely very familiar, but there's something about Etsy,there's just something special about the way it's crafted. The way it started was for these handmade customized goods, whereas Amazon, it was the more traditional retail items.
Sharma:I agree. Etsy has that cache of offering the handmade artisan goods. You almost want to look there first. Just to sum up on Etsy, they have the first-mover advantage, which seems like they're retaining. This year, they raisedfiscal guidance for revenues, profit. It may be a bumpy ride,so we're not obviously advising people to jump into this stock. But definitely keep an eye on it. It seems like they're holding their ground so far, and there is a market, as we discussed this entireepisode, for custom goods. And Etsy is in the rightplace at the right time.
Asit Sharma has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool owns shares of Etsy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.