Shares of Etsy Inc. (NASDAQ: ETSY) have gained 106% over the past 12 months and 5% over the past one month. The stock stayed in red territory on Thursday, a day after the company announced it was going to buy Depop, a fashion resale marketplace. The stock had rallied at the time of the announcement but then took a dip.
Despite this, the general sentiment around the stock is positive and the majority of analysts have given it a Buy rating. According to TipRanks, it has an average price target of $224.83, which represents a 36% upside from the current price.
Strong performance
Etsy saw good growth during the COVID-19 pandemic thanks to the surge in ecommerce. The company ended 2020 with $10.3 billion in gross merchandise sales (GMS) and $1.7 billion in revenue, both reflecting triple-digit increases year-over-year.
For the first quarter of 2021, Etsy delivered GMS of $3.1 billion and revenue of $550.6 million, reflecting year-over-year growth of 132% and 141%, respectively. Net income grew over tenfold to $143.8 million, or $1.00 per share, from the prior-year period.
Etsy provides unique and creative goods which has helped it build a strong customer base. This uniqueness has helped it retain many of its new customers who discover the platform and then keep coming back. During the first quarter, the Etsy marketplace acquired approx. 16.3 million new and reactivated buyers who haven’t purchased at least for a year or more. Habitual buyers, with six or more purchase days and $200 or more in spend, grew 205% YoY in the trailing 12-months.
During the quarter, active sellers on the platform grew 67% year-over-year to 4.7 million while active buyers increased 90% to 90.7 million. The ability to attract new customers and retain existing ones thanks to its niche position is expected to drive further growth for Etsy in the coming months. The company expects GMS to grow 5-15% and revenue to grow 15-25% year-over-year in the second quarter of 2021.
Depop acquisition
Etsy has agreed to acquire fashion marketplace Depop for $1.62 billion. The deal is expected to close during the third quarter of 2021. This acquisition is being viewed as a step in the right direction for Etsy as it will help the company expand its offerings and add a whole new customer base to its platform.
Depop had GMS of $650 million and revenue of $70 million in 2020, both up over 100% YoY. GMS grew at a CAGR of nearly 80% from 2017-2020. The acquisition will help Etsy expand into the second-hand fashion market, which is a rapidly-growing segment among young customers who make up the majority of Depop’s users.
The second-hand market in the US is projected to grow at a CAGR of 39% from 2019-2024 to reach $64 billion. Depop has around 30 million registered users across 150 countries. In 2020, Depop had 4 million active buyers and 2 million active sellers.
The current momentum coupled with the efforts it is making to expand its offerings and grow its customer base is likely to help Etsy drive significant growth over the coming months.