How Etsy (The Company) Makes Money

Etsy is a specific category driven online marketplace that connects buyers and sellers. What makes it different is that buyers recognize Etsy as a marketplace where they can find unique products for their special needs. Here, sellers are mostly individuals who have built their expertise in different types of crafts. Buyers looking for gifts or looking for products that have some personal and differentiated touch on them visit Etsy. Etsy's top six retail categories include homewares and home furnishings, jewelry and personal accessories, craft supplies, apparel, beauty and personal care, paper and party supplies that contributed 80.0% of overall GMS (Gross Merchandise Sales) during the year 2020 (excluding face mask sales). After the acquisition of Reverb in 2019, Etsy also has presence in market for musical instruments.

So, we can clearly understand what Etsy offers to its sellers and buyers. Sellers get the accessibility to millions of buyers who are looking for specific items for personal use or gifts ranging from vintage products to handmade crafts. Buyers can find their desired products in the home page or through search by keywords or categories.

Since Etsy operates in a niche market of online retail, its TAM (Total Addressable Market) also needs to be addressed to get a clear view of the room for growth. Etsy currently operates in seven core geographies including United States, United Kingdom, Germany, Canada, Australia, France and recent addition India. According to Etsy's market opportunity analysis conducted in 2019, online market size across all relevant retail categories for the Etsy marketplace considering six of its seven core geographies represents USD 249 billion market opportunity. They also estimate that by 2023, the online market opportunity would expand to USD 437 billion. This estimation didn't consider the acceleration happened in the trend of shifting to online marketplace due to covid-19. This estimation also didn't consider the specific buyer group Etsy attracts who are less price sensitive and focused on specific product categories. However, we need to understand that Etsy's TAM can further expand through geographic expansion and acquisition of other specialized marketplace business as it did in 2019 by acquiring Reverb.

In 2020, Etsy's GMS (Gross Merchandise Sale) stood at USD 10.3 billion in 2020 which accounts for 4.14% of claimed market opportunity estimated in 2019. It needs to be noted that Etsy's GMS experienced a stellar 106.0% year over year growth in 2020, thanks to covid-19 induced acceleration in buyers' shift to online marketplace.

Etsy makes money from two primary avenues called marketplace revenue and service revenue. Marketplace revenue consists of listing fee, transaction fee, payments platform and offsite ads transaction. The company launched offsite ads offering in 2020. Service revenue is generated from onsite advertising services, Etsy shipping labels and other optional services for sellers. Marketplace revenue and service revenue contributed 75.0% and 25.0% to total revenue respectively. Etsy fees include USD 0.20 as listing fee for each item listed for up to four months, 5.0% transaction fee, 3.0%-4.5% for payment processing fee and 12.0%-15.0% fee for offsite advertising.

Etsy has generated a lot of attention for its core focus on specialized products that help buyers make a statement and express themselves as different from the crowd. Every seller in Etsy has some unique style that resonate with specific group of consumers. Vast range of unique products from independent sellers, social media buzz and growing thoughtful consumers make Etsy a strong marketplace. As discussed earlier, Etsy has a lot of room for growth considering the TAM and opportunity for geographic expansion and further acquisition.

How Food Delivery Apps Make Money

Third party food delivery is proving to be a tough business space with minimum option to differentiate, tight profitability margin and intense competition that is putting the industry in the process of more and more consolidation. When Uber started and turned into something that people would use everyday, it became obvious that the idea of moving people from Point A to Point B with the help of an app would branch into Uber for other services like food delivery, groceries or any other parcel. The world of convenience economy was only about to expand. Like Uber, an app would connect merchants to consumers via riders. The app is a platform that help connect these three parties that are required to make a transaction and shipment. The space that was ripe for disruption in this convenience economy was restaurants. Most restaurants didn't have their own delivery logistics. There were only few exception that you can think of that had their own delivery logistics. They had so because they

What to Look for in a Cash Flow Statement

Cash flow statement demonstrates the flow of cash coming into a business and going out from a business. It differs from income statement because cash flow statement is recorded on a purely cash basis. In income statement, if a business booked a sale of a product or a service and was yet to receive cash from the customer, the business would record it as sale in its income statement. On the other hand, if the business purchased raw materials for the products they sold or incurred cost for the service they provided, they would record this expense as cost of sales or cost of service regardless of whether the transaction was on a credit basis or cash basis. This method of accounting is called accrual accounting which is the most used method of accounting for income statement. So, cash flow statement gives you a different perspective. Since, it records how much cash is coming into a business and going out from the business through operating activities, investing activities and financing acti

Understanding Free Cash Flow

When I was first introduced to the concept of 'free cash flow' back in my BBA program, I didn't grasp it as clearly as I should or could have. I blame myself for not putting in enough effort to understand the concept back then. Now that I have spent a considerable amount of time using ‘free cash flow’ as one of the major valuation methods, I can see how this concept can be learned in an effective way. In this article, I attempt to explain how businesses generate free cash flow, what it means to investors, and why and how free cash flow is used in company valuation. The Basic In a nutshell, free cash flows are the cash flows available for distribution to suppliers of capital . When we consider free cash flow to the firm (FCFF), it is the cash flow available to both debtholders (those who lend to the company) and stockholders or equity holders (those who buy the stock of the company or have equity ownership of the company). And when we consider free cash flow to equity

History of Money and Monetary Systems

From ancient Rome to modern world, money has gone through an evolutionary process. For the Roman empire, scarcity of silver and gold meant resorting to debasement to create new money. For the Inca empire, the same silver and gold was sacred precious metals coming from the hand of God. Spanish empire hunted for these precious metals to accumulate power but in truth abundance of silver lowered the value of the metals for which they had unquenchable lust. But over the course of time, the concept of money turned out to be a simple narrative installed in the minds of the people. The truth of the matter is, be it gold or silver or simply a piece of paper or the digits in your mobile wallet, the money has the value only if other people value it the same way. It's a machine driven by trust. The narrative of money has made a significant contribution to the progress of humankind. Although It was often flawed and we are yet to find a perfect system, the concept of money was one of the greates

How Pinduoduo Made it Big | History of Pinduoduo

Alibaba (Taobao and Tmall) and JD was dominating the China e-commerce space and no other company was able to match their scale until a new company emerged with an aim to serve the tier 3 and 4 cities that remained underserved. It focused on perishable products and daily necessities to make sure the users have high purchase frequency and it was also their category of choice because of low competition. It growthhacked its way by offering group buying feature at too good to believe discounts. It took it to the next level by focusing on interactivity by making the app browsable for fun and rewards. The company’s IPO prospectus referred to the platform as mix of Costco and Disneyland, the pricing is the Costco part and the fun browsing is the Disney part. Pinduoduo built a recipe for building a social commerce platform that mimicked the way people shop offline. It took cues from the gaming world to entice users to spend time on the app. All these viral elements made Pinduoduo the largest e

Numeric Narrator

Search This Blog