1/ Thread: $ETSY 4Q'20 Earnings Update
By now, it's widely recognized how good Etsy is, so the debate is centered around valuation. I'll comment on that, but first here are my notes.
Disclosure: $ETSY is a major core holding of mine (~20% weight).
By now, it's widely recognized how good Etsy is, so the debate is centered around valuation. I'll comment on that, but first here are my notes.
Disclosure: $ETSY is a major core holding of mine (~20% weight).
2/ GMS in 2020: $10.3 Bn growing +106%
Revenue $1.7 Bn growing +111%
"we roughly achieved our 2023 aspirations in 2020"
Etsy grew 2.5x as fast as e-commerce, and it is now 4th largest e-commerce site by monthly visit.
Revenue $1.7 Bn growing +111%
"we roughly achieved our 2023 aspirations in 2020"
Etsy grew 2.5x as fast as e-commerce, and it is now 4th largest e-commerce site by monthly visit.
3/ Etsy is not just an US story now; the pace of international growth and domestic GMS in those markets highlight not only cross-border network effects in play, but also Etsy itself has become a potent international brand. 
4/ Except for electronics and few other categories, you can buy products of almost any category on Etsy now. Just peek through what Etsy was selling in different months in 2020.
# of habitual buyers (defined as buyers who buy >6 items or spends >$200) was +157%.
# of habitual buyers (defined as buyers who buy >6 items or spends >$200) was +157%.
5/ Active sellers was 4.1 mn, up +64% in 2020, and yet GMS per seller was +22%.
# of active buyers was 81 mn, up +77% and yet GMS per buyer was +13%.
These are some truly incredible numbers.
# of active buyers was 81 mn, up +77% and yet GMS per buyer was +13%.
These are some truly incredible numbers.
6/ What's exciting is customer experience is improving considerably on Etsy.
In Q4, they launched installment payments and ability to filter searches based on expected delivery dates.
2021 focus is on personalization and post-purchase experience.
In Q4, they launched installment payments and ability to filter searches based on expected delivery dates.
2021 focus is on personalization and post-purchase experience.
7/ Etsy is much more than face masks now. Masks was just 4% of overall GMS in Q4. Non-mask sales was +118% in Q4.
"50% of the 3 mn mask-only buyers in Q3 returned in Q4 for a non-mask purchase"
"50% of the 3 mn mask-only buyers in Q3 returned in Q4 for a non-mask purchase"
8/ UK is now >10% of overall revenue for Etsy.
Etsy has expanded beyond its 6 core markets and included India as the 7th core market.
I mentioned in my October deep dive that markets such as India can ensure # of active sellers on Etsy marketplace can grow for years.
Etsy has expanded beyond its 6 core markets and included India as the 7th core market.
I mentioned in my October deep dive that markets such as India can ensure # of active sellers on Etsy marketplace can grow for years.
9/ <2% opted out of Off-sites ad which had 6x-8x ROI.
Older cohorts drove highest GMS per buyer and grew as fast as recent cohorts, indicating strong base.
In Q4, Etsy bought back ~0.5% of outstanding shares at $125/share. That's the kind of capital allocation I like.
Older cohorts drove highest GMS per buyer and grew as fast as recent cohorts, indicating strong base.
In Q4, Etsy bought back ~0.5% of outstanding shares at $125/share. That's the kind of capital allocation I like.
10/ Guidance: Q1 GMS +115% to +125%
Easier comp in Q1 since Etsy experienced some negative growth weeks in March last year.
Management tried to temper expectation for the rest of the year. It is indeed very, very hard to forecast what will happen in the back half of this year.
Easier comp in Q1 since Etsy experienced some negative growth weeks in March last year.
Management tried to temper expectation for the rest of the year. It is indeed very, very hard to forecast what will happen in the back half of this year.
11/ So what about the valuation?
For a moment, let's forget Q2-Q4 in 2021. Let's look at the larger picture here.
Despite all these growth, Etsy remains a niche marketplace. Just look at their top categories and think about the size of these markets.
For a moment, let's forget Q2-Q4 in 2021. Let's look at the larger picture here.
Despite all these growth, Etsy remains a niche marketplace. Just look at their top categories and think about the size of these markets.
12/ @JohnHuber72 thinks Etsy's GMS can potentially reach $50 Bn in 5-6 years. Even $50 Bn GMS in e-commerce scale means Etsy will remain a niche player.
Let's say John got both the numbers wrong by a significant margin. Assume Etsy reaches $35 Bn GMS in 10 years (~13% CAGR).
Let's say John got both the numbers wrong by a significant margin. Assume Etsy reaches $35 Bn GMS in 10 years (~13% CAGR).
13/ Assuming take rates of 20% (vs 16.7% in 2020), it leads to $7 Bn topline. With ~30% FCF margin (vs ~39% in 2020), we get $2.1 Bn FCF.
If we slap 25x on that FCF, we get ~7% IRR (ignoring buybacks).
If they can reach $50 Bn GMS in 10 years, ceteris paribus, we get ~11% IRR
If we slap 25x on that FCF, we get ~7% IRR (ignoring buybacks).
If they can reach $50 Bn GMS in 10 years, ceteris paribus, we get ~11% IRR
14/ I'm not a believer of #NeverSell. But I do not see a compelling reason to sell here even though the stock is +300% in last 1 yr.
In fact, the opposite might be more compelling given some very interesting data points in this call.
In fact, the opposite might be more compelling given some very interesting data points in this call.
End/ Deep dive on Etsy: mbi-deepdives.com/etsy-a-handmad…
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