Business model

Etsy is a US e-commerce website and online marketplace for buying and selling handmade products founded in 2005.
Revenue comes mainly from services, subscriptions and fees.

Assumptions

We expect sales to grow to US$3.08B by 2028 with mediate growth.
The profit margin is expected to be around 14% in 2028.

Risks

50% of the gross profit is used for marketing, which nevertheless only leads to low user growth due to internal site problems such as dropshipping and fake products, which at the same time leads to the loss of sellers and buyers.
Etsy's biggest direct competitor is Ebay, with eBay focusing on the second-hand market, which gives Etsy a virtual monopoly on the handmade market and thus controlling large parts of the online handmade market.
If the introduction of AI potentially brings no success or only little improvement, Etsy's growth could temporarily decline to no growth without other catalysts.
In the first quarter of 2025, active user numbers fell by approximately 11%, which, although partly attributable to macroeconomic factors, nevertheless demonstrates Etsy's problems in the area of customer retention.

Management

CEO Josh Silverman is rated positively by employees as well as the overall working atmosphere at Etsy.
Under Silverman's leadership, the Values-Aligned Business team was disbanded and Etsy lost its B Corp status, which is seen as a departure from social and environmental commitments.
Fee increases and bans on the sale of certain items have made Etsy unpopular with sellers in recent years and have led to seller strikes.

Valuation

As already mentioned, the core business areas are transactions and fees on Etsy, where growth potential could be created through the strategic use of AI.
With a pessimistic 2-stage DCF model, we have a company value on Etsy of around US$8.8B - US$10.8B.

The average future valuation of the e-commerce industry is a P/E of 27.9

Catalysts

75% of revenue comes from Marketplace revenues consisting of transaction and listing fees as well as offsite ad fees and the Etsy payment services.
Etsy is currently trying to use AI to improve their search and the overall app experience. If this is successful, it could accelerate the company's growth again.

Disclaimer

The user IndusyHoldings holds no position in NasdaqGS:ETSY. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.