Every single time my wife opens an $ETSY package, she sees a handwritten note from the seller. She goes "Awww. That's so sweet" and she posts a picture of the note along with the item on her IG stories. The number of times she has done that with an $AMZN package : 0.
Thesis : Internet has democratized entrepreneurship. That's the theme of last 2 decades and it's going to be the theme for next 2 decades as well.
That's a change I guarantee will never revert. $EBAY $AMZN $SHOP $FB continue to contribute and benefit from this theme.
That's a change I guarantee will never revert. $EBAY $AMZN $SHOP $FB continue to contribute and benefit from this theme.
All of them have carved their niches and so has $ETSY. Every one I know dreams of running a self sustainable business and $ETSY makes it possible by giving sellers a increasingly global audience. It gives buyers a wider selection of personalized items.
I've looked at it before. I saw a P/E of 80. Closed the tab and moved on. But I'm trying to extend my horizon here.
$220/share : Trading at $28B market cap & enterprise value.
2020 has certainly been a blessing for $ETSY. The mind share has increased and it's here to stay.
$220/share : Trading at $28B market cap & enterprise value.
2020 has certainly been a blessing for $ETSY. The mind share has increased and it's here to stay.
For the purposes of looking at past growth, let's excluded 2020's bump.
From 2014 to 2019,
* Revenue has grown from $200M to $820M at 32% CAGR.
* Gross profit has grown from $120M to $550M at 35% CAGR.
From 2014 to 2019,
* Revenue has grown from $200M to $820M at 32% CAGR.
* Gross profit has grown from $120M to $550M at 35% CAGR.
They have always been free cash flow positive. I'm a little surprised to see that they have generated $200M in free cash flows in 2018 and $2019. I'm also surprised that they have allocated a good chunk of that free cash flow towards buying back stocks --> 1% shareholder yield.
That's ~68% and ~23% gross and free cash margin respectively. That's comparable to $EBAY at ~75% and ~30% margins.
What do I have to assume for 10% IRR?
It's an increasing returns / internet economy business. Given their pre pandemic growth of >30%, it's not far fetched to assume they would grow revenues at 25% per year for next 5 years.
It's an increasing returns / internet economy business. Given their pre pandemic growth of >30%, it's not far fetched to assume they would grow revenues at 25% per year for next 5 years.
Assuming 75% and 30% in gross and free cash margins %.
By 2025,
* revenue --> $5.2B
* gross profit --> $3.9B
* free cash flow --> $1.6B
By 2025,
* revenue --> $5.2B
* gross profit --> $3.9B
* free cash flow --> $1.6B
Assuming 4% FCF/EV yield ie) 25x multiple, we get to $43B in enterprise value. That's 9% CAGR.
Adding 1% shareholder yield to it, we get to 10% IRR.
How probable are these assumptions?
Adding 1% shareholder yield to it, we get to 10% IRR.
How probable are these assumptions?
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