Etsy Is No Pandemic Flash in the Pan
(Bloomberg Opinion) -- If it wasn’t clear already, it ought to be now: Etsy Inc. is more than just a stay-at-home stock.
The website for handmade goods became a go-to destination for face masks early in the pandemic thanks to quick pivots by its independent sellers to making this new necessity. That helped spark a rally in its shares that made it one of the best-performing stocks in the S&P 500 Index in 2020.
On Thursday evening, Etsy put an exclamation point on its breakout year with a fourth-quarter earnings report that included revenue and profit that blew past analysts’ expectations. For the full year, Etsy’s revenue more than doubled, and the total sales that took place on its platform, or gross merchandise sales, soared to $10.3 billion. That represents a 106.7% jump from a year earlier, an increase that means it grew far faster than the overall U.S. e-commerce market. Etsy CEO Josh Silverman told investors on Thursday that the way the year’s finances shaped up, his team “roughly achieved our 2023 aspirations in 2020.”
For context on what a force Etsy now is in the shopping universe, sales on its platform in fiscal 2020 were greater than the pre-pandemic annual revenue of large retail chains Ulta Beauty Inc. and Dick’s Sporting Goods Inc. And the details of the fourth-quarter report provide strong signals that the site is well-positioned to build upon the market share it has captured.
It’s undeniable that face masks were responsible for bringing throngs of new customers to Etsy’s site last year, resulting in $740 million in sales of those items. But they were far from the key driver of the growth. Face masks fell to 4% of gross merchandise sales in the fourth quarter, down from 11% in the third quarter and 14% in the second quarter. And growth in non-mask sales ramped up significantly in the latest period.
It was inevitable that demand for masks would ease once people had accumulated a stash of them. But Etsy is growing so strongly in other categories that it doesn’t much matter. Moreover, it reported that 50% of the customers who purchased only a mask on the site in the third quarter returned in the fourth quarter to buy something else. That shows that its success during mask mania proved to be a powerful tool for attracting customers that could have long-term value.
New customers are important to Etsy’s long-term prospects, but so, too, is the behavior of existing ones. The company reported an impressive 157% increase in habitual buyers in 2020, a group it defines as purchasing on the site at least six times a year. That is a testament to its efforts to personalize search results within its vast digital catalog and to use marketing to get Etsy customers to think of it for a wider array of purchase occasions.
On marketing, Etsy stepped up its spending significantly in the fourth quarter, including plowing more dollars into digital forms such as search-engine ads. But perhaps more noteworthy, it more than doubled its spending from the third quarter on brand-focused ads such as TV commercials. The impact of those types of campaigns isn’t as immediate or easily quantifiable impact as the one for digital ads, but Etsy was smart to make the investment. The business will benefit if it is not just winning people over one product at a time in Google search results.
Etsy did not offer full-year guidance for 2021, but it’s a near certainty that growth will cool because of the tough comparison with 2020. I’ll be more focused on how good a job it does hanging on to the more than 81 million active buyers it had in the fiscal year. With a vast merchandise selection in social-distancing-friendly categories such as home goods as well as reopening-friendly categories such as personalized clothing and wedding decor, I expect Etsy will remain in strong shape this year, whatever course the health crisis takes.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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