Etsy needs a strategy to become more mainstream...

Here's a description of Etsy:

"Etsy, Inc. (Etsy) operates a marketplace to connect people around the both online and offline for making, selling and buying goods. The Company's geographical segments include United States and International. The Company's community includes Etsy sellers, Etsy buyers, wholesale partners, manufacturers and Etsy employees. The Company's platform includes marketplace, Seller Services, technology and community, both online and offline. The Company offers a range of services to help Etsy sellers build their personal brands, engage customers and complete transactions. The Company has over three seller services: Promoted Listings, Direct Checkout and Shipping Labels. Its Promoted Listings offering enables an Etsy seller to pay a cost-per-click-based fee to feature and promote her goods in search results generated by Etsy buyers on its platform. Its Direct Checkout offering allows Etsy sellers to accept various forms of payment, such as credit cards, debit cards, PayPal and Etsy gift cards."

On the face of things, Etsy has the potential to make a great investment. Mindshare, platform value, takes a small cut from a large growing GMV.  The market cap is only $1.5b, so that could make for an awesome compounding machine if the growth opportunity is significant.

However, digging a little deeper reveals some issues for a long term investor looking for a profitable growth investment.

The long term issue for me is they need to do expand their appeal to men and more mainstream people to grow.

But that is a catch 22.  They built themselves as a vintage non-mainstream company. 

The biggest issue with Etsy for me is that men do not use it. Having the majority of your customer base as women is good, as many are loyal and willing to pay a higher price for vintage handmade products. But just like a company that only sells products to men, it reduces your customer base by 1/2. Long term, that limits growth.

Etsy also has this self righteous element to it, where people who shop on it, have a superiority complex. So basically vegan women who are members of PETA and have four cats.

Now there is nothing wrong with that. But that does not scale well. Also, Etsy has already alienated many of their core fan base by trying to appeal to a broader audience and by going public. You can't be niche vintage handmade and also grow revenues 30% a year. You can't have your cake and eat it too.

The adult female population in the world is over 2 billion, but their target market is a tiny subset of that 2b. Maybe 5% of that? 100 million buyers? Right now they have about 27MM buyers. They have done well in terms of penetration already.

So, unless they broaden their appeal, their growth rate is going to slow down from 20% YoY. Their seller services is a bigger proportion of their revenues than marketplace. In other words, they are making more money off charging sellers for services than actually off the sales that they are generating. There is something wrong with that.

I am not really impressed by their Seller Services initiates (selling services to sellers of products). I think you want to see core growth in GMV and number of buyers. If the buyers go up, the stock will go up, since that will bring more sellers (customers create demand for products). 

Is it cheap at $1.5b.  Yes, appears so since it has a loyal and growing user base.  That is worth something.  But there is a bigger growth problem here that needs to be addressed for Etsy to truly become a scale player and hence an interesting long term investment opportunity.