Amongst the widespread surge of e-commerce in 2020, the year witnessed the steep rise Etsy, with 451.5 million USD total revenue in Q3 2020, up 128.1% from the year before. Etsy is an online platform specifically tailored for artists and crafters; it charges a commission of 0.20 USD per item sold. With most of the sellers being one-person businesses who handcraft their products, the company’s distinguishing factor from major retailers is its human connection between buyer and seller. For this reason, Etsy also has no warehouses, which has resulted in high levels of free cash flow due to the lack of capital expenditure.
2020 certainly provided a large expansion financially for Etsy. Its active sellers and buyers had risen by 42% and 55% year over year respectively as of Q3 in 2020 with the latter figure reaching 69.9 million people. Furthermore, Etsy’s net income tripled, reaching 200.7 million USD over the first nine months of the year. Naturally, this resulted in exceptional performance for Etsy’s stocks, rising in value from 11.78 USD per stock on 30th December 2016, to 214.46 USD as of 21st January 2021, an 18-fold increase over five years. Consequently, Etsy’s stock finished second, trailing only Tesla, in the top performing stocks of the S&P 500 in 2020. It had a price return of 301.6%, 179.7% higher than Nvidia’s value in third place.
On their website, Etsy have provided an interesting insight into the consumer trends of 2020 on their platform. The site witnessed a huge surge of demand for cotton masks and hand sanitisers. The platform also experienced steep increases in searches for many other lockdown-related accessories and tools. The most notable percentage increases for searches on Etsy’s websites for products month over month were as follows: 1547% for paint by number kits in March; 2564% for measuring spoons in April; 2851% for garden boxes in May; 3676% for pet supplies in September as a result of the ‘puppy boom’ and 5380% for hot chocolate bombs in October. Therefore, the pandemic sparked a large increase in demand for a wide variety of products across the platform over the year.
Despite the successes of 2020 for Etsy, 2021 will inevitably pose challenges for its financial trajectory. As vaccines roll out across the world over the coming months, it is believed that this will decrease the demand for many lockdown-related products. Furthermore, concern has been raised over the fact that several buyers only approach the site for the odd gift rather than using the platform for regular needs, as is the case for several major e-commerce retailers. According to Webretailer, in terms of average visits per month as an online marketplace in 2020, Etsy came 10th with 266.3 million. Amazon and eBay were much more frequented with the figures 5.7 billion and 1.6 billion respectively. Thus, if Etsy is to build on its successes, perhaps it will need to increase the frequency of its consumers’ visits to the platform in order to compete with its rivals.
Nevertheless, Etsy’s financial outlook for the coming year appears to remain positive. Etsy has experienced steady and consistent growth of revenue from 2015-2019, going from 273.5 million to 818.4 million USD. Some financial reporters suggest on account of this that it is not solely dependent on the pandemic for its success. Analysts at Forbes in particular, are strongly optimistic about the topic. They believe that the company’s revenue can grow by a 1.8 multiple from an estimated total of 1.2 billion USD in 2020, to 2.2 billion USD in 2023. They also predict that due to Etsy’s lack of manufacturing the fixed costs of marketing, product development and administration are likely to fall in relation to revenue growth. Nicholas Rossolillo from ‘The Motley Fool’, a financial and investing advice firm, has a positive outlook too, despite thinking that the company’s trajectory will flatten slightly in 2021. He states that this is because Etsy is still a relatively small company with a market capitalisation of 26 billion USD as of 19th January 2021. This implies that the firm still has plenty of room in its market for potential growth over the coming years.
There is evidently a dilemma confronting potential Etsy investors. Either they can invest elsewhere believing that the surge of the company will soon be over as a result of vaccine distribution or they can trust that the firm will continue to prosper and grow in 2021 and the coming years. This would presumably be decided on account of the company’s consistency prior to COVID-19 and its future growth potential since it is still a relatively small company in a market dominated by e-commerce giants such as Amazon and eBay.
By Robert Armstong-Jones
Sector Head: Gregor MacDonald