Thread by @borrowed_ideas

1/ $ETSY 1Q’21 Update

From 2016-2018, Etsy added 10.9 mn active buyers to its marketplace.

In the first three months of 2021 (AFTER the pandemic-fueled holiday season), Etsy added 8.8 mn active buyers *QoQ*.

Pre, and post-pandemic Etsy are truly a different marketplace.

2/ While the market seems to be focused on YoY numbers, the underlying strength of the marketplace is actually better understood by QoQ numbers.

We usually don’t look at QoQ numbers, but given we are anything but a normal comp, QoQ numbers can depict an interesting narrative.

3/ So what do I see?

I see 1Q’20 (so, pre-pandemic) was down 18% QoQ whereas 1Q’21 was down 13% QoQ.

Here’s how many active sellers have been added (again, QoQ) in the last 6 quarters:
4Q’19: 107k
1Q’20: 115K
2Q’20: 326K
3Q’20: 541K
4Q’20: 684K
1Q:21: 337K

4/ See, 1Q’21 looks more like 2Q’20 (post-pandemic) than 1Q’20.

The pandemic might be almost over in the US, but Etsy appears to be permanently a different marketplace.

5/ Here’s the full quarterly breakdown on different metrics in the last 9 quarters. Etsy guided 5-15% GMS growth which is why stock is down 10% AH.

Looking at the wide divergence between past guidance and actual result, I wonder whether ~20% GMS growth is still possible.

6/ But that wouldn’t be my base case. Let’s not forget mask was 14% of 2Q’20 GMS which will probably be ~1-2% for 2Q’21.

So if we back out masks, the underlying GMS is more like 20-30% if they manage to post high end of GMS guidance.

7/ Moreover, Etsy management got much better at forecasting as you can see Q1 GMS growth was lot closer to the actual result, and the outperformance was almost entirely driven by stimulus.

8/ “Sellers have now uploaded about 5 million videos to the Etsy site. That's up 36% quarter-over-quarter”

More focus on personalized items as buyers are 20% more likely to buy when it is personalized.

9/ Reverb GMS grew 50% YoY, 5x faster than musical instrument industry growth. Reverb GMS margin increased from 33% to 53%.

International GMS is now 42% of overall GMS. “International domestic” GMS grew 2x faster than overall revenue.

10/ One of my core thesis is Etsy’s brand will scale beautifully across countries. The data looks encouraging.

92% payments was processed via Etsy Payments (vs 89% in 1Q’20). Etsy ads was +138%.

11/ Take rates reached new high, thanks to Etsy ads, especially off-site ads as well as Etsy payments. GM was up +1,000 bps.

12/ Why is Etsy ramping up investments in marketing dollars?

13/ Active buyers +91% YoY

But more importantly, habitual buyers +200% YoY

Plus GMS per active buyer +20% YoY; GMS per active seller +34% YoY

14/ Search experience is likely to get better. Sellers will get more data points to understand the health of their business.

15/ Etsy had higher AOV (+21% YoY) which led to higher margins despite more marketing dollar investments.

“What are your favorite places to shop online?” Etsy is now among top 10 answer to this q in the US and UK. Goal is to move up the rank and then do it in multiple countries.

16/ Here’s my bull case for Etsy.

Sometime next year, Etsy beats Walmart dot com in terms of website visits. Over the next 5-10 year period, Etsy may beat EBAY as well. So potentially the second most visited e-commerce marketplace in the US is currently worth <$25 Bn.

17/ If it gets to $50 Bn GMS in 7-10 years (~15-20% CAGR) and with ~20% take rates, revenue becomes $10 Bn.

Assuming ~30% FCF margin and 20x FCF multiple, we are looking at 10-15% IRR (ignoring buybacks).

18/ It’s not the worst news that stock is -10% AH. Ever since the retail hype, I wished there would be some reset in the shareholder base.

I hope people who're looking for 50% GMS YoY will sell the stock and a more nuanced, long-term shareholder base will be gradually created.

End/ Here’s my deep dive on $ETSY from October 2020: mbi-deepdives.com/etsy-a-handmad…

I’ll cover $ANSS earnings tomorrow.

All my twitter threads here: mbi-deepdives.com/twitter-thread…