The Handmade/Vintage Hype
If you’ve been away from the internet for the past couple years, allow us to fill you in on one of the more recent e-commerce trends of selling handmade/vintage goods. This niche market includes goods like repurposed vintage wear all the way to custom-made suitcases and taps into a consumer’s sense of ‘individuality’. With more and more consumers looking for ways to separate their sense of style from the pack, websites that focus primarily on the sale of vintage and hand made goods, set themselves in a good position to leverage this trend; but is that all this is? A trend?
We decided to have a cursory look at keywords such as ‘vintage’, ‘custom made’, ‘hand made’ and ‘hand crafted’ to get a general sense of interest amongst the internet in items of this nature, the results were quite revealing:
Reference: Google Trends
Isolating for searches in the United States between 2004 till present we noted an overall downward trend in all of these terms and acknowledge that this does not bode well for purveyors of all things hand/custom made.
For sellers of handmade/vintage goods, there are numerous marketplaces to choose from where sellers can sell their wares online. We took the liberty of comparing search interest for ‘Etsy’ against the next most popular platforms in the same space:
Reference: Google Trends
It’s staggering how much greater Etsy’s Internet presence is over it’s niche market competitors; their searches do not even register in comparison. Excluding ‘Etsy’, we noted an uptrend from 2004 – 2011, followed by a considerable acceleration for ‘Big Cartel’ and ‘Storenvy’ in late 2012 early 2013, which we speculate could have been a response by users resorting to alternative platforms in anticipation of Etsy policy change in 2013. In either case, we note that since the significant spike in 2013, searches for all these platforms have either fallen or stalled. So if the search trends are pointing downward, can we infer anything about Etsy stock?
Financial Figures Confirming Google Trend?
Etsy is fundamentally an e-commerce platform, whose revenue streams are derived from either it’s website or mobile platform. It’s financial fortunes are tied to it’s Internet presence and more so, it’s ability to drive Internet traffic. If Internet traffic to the website slows or stagnates, so will the company’s ability to generate revenues. The fact that searches are currently stagnating should be an alarming trend.
If you were to glance at annual revenue figures, one may be inclined to say that they look positive, but let’s take a closer look:
Reference: Google Finance
Total annual revenues look like they’re moving in a healthy upward trend but when you break it down to year over year % changes, or Etsy’s ability to continue increasing revenues, we note that this figure has diminished over the last three years:
|2013 Revenue Growth||67.5%|
|2014 Revenue Growth||56.4%|
|2015 Revenue Growth||39.8%|
This should be a red flag considering that the company on an annual basis is not even profitable and will need to increase its scale to reach break even.
The same trend is identified in gross merchandise sales (“GMS”), which measures total sales between buyers and sellers through the Etsy platform as well as active users (buyers and sellers), which is arguably more indicative of Etsy’s Internet presence. In Etsy’s most recent 2015 annual report, management cites the following figures:
|Annual GMS (In B)||% YoY Change|
*Figure is based on an extrapolation of following year % increase and revenue figure.
We acknowledge that part of the stagnation in the ‘Etsy’ search trend has to do with changes in Internet trends. More and more users are accessing content through mobile apps, and in the case of Etsy, in it’s annual MD&A for 2015, has disclosed 43% of all purchases came from mobile devices, meaning there are less users accessing the platform via search. The stagnating search trend may be partly related to users changing Internet habits, we still maintain concern over growth in key areas such as revenues, GMS, and active buyers/sellers and the confirmation provided by Google search trends.
Etsy stock over the last two months has seen a ~20% appreciation in share price with numerous asset management outfits taking bigger positions with the expectations of positive things to come. In the world of stock analysis there are numerous approaches one can take in determining if a company is a viable investment, but when you have multiple financial figures pointing to a slow down in growth, not to mention the slow down in online presence, the rationale behind accumulating Etsy stock becomes increasingly unclear.