Whoa! I didn’t expect this kind of a move today! Etsy, an online marketplace for handmade goods, posts earnings after hours tomorrow. I expected a vanilla day of sideways trading as investors nervously await Etsy’s quarterly results after the bell tomorrow. What we got was a face-ripping 18 percent advance thanks to Citi initiating Etsy at BUY this morning. I’m going to take my victory lap while I still can! Here’s an article I wrote on Seeking Alpha last November, Etsy and Its Macro Tailwinds. Read it and pat me on the back quickly, because it could easily give it all back by the end of the week. That’s just the way small caps like Etsy work.
But even with the big move today, Etsy is still well below its all-time high. At a market cap of just over $1.3 billion, it is still just a small fish in a massive pond and could easily get gulped up by a fatter fish. So, on the eve of earnings, let’s have some fun and speculate on who would buy Etsy.
Some have suggested Amazon and eBay buy Etsy to boost their own handmade marketplaces. Those are the easy ones. Amazon is the most talked about buyer. It is, after all, the dominant online retailer. Why not grab another piece of the e-commerce pie? Google is even mentioned as a possible suitor. That’s a little more of a stretch. Etsy’s stock popped briefly last year on those rumors. But why doesn’t anyone mention Facebook as a buyer? Well, here now are four reasons I’ve put together for Facebook to buy Etsy:
1. A shot in the arm for social shopping
Social shopping should be the next step in the evolution of e-commerce. Facebook knows it and it wants a piece. It has been a slow slog though and maybe Facebook could use some help.
According to a recent Washington Post article Why the social media ‘buy button’ is still there, even though most never use it, social media channels accounted for less than 2 percent of overall online sales and their share has not been growing. Part of the problem, the article notes, is there is simply not enough awareness around the concept of buying goods directly through social media. People are not used to it. Consumers, it seems, still need some kind of marketplace or retailer to latch onto.
If Facebook has social shopping in its future, it may need an established marketplace in its portfolio to prime the pump and Etsy could play that role. An acquired Etsy could maintain a somewhat separate identity with a smart tie-in to some of Facebook’s best features, all while lending a kind of credibility to Facebook’s own buy buttons or other social shopping props on the main feed. This could finally fill the gap between social shopping and traditional e-commerce.
Etsy’s artisans already lean heavily on Facebook to exchange ideas and drive traffic to their shops. Facebook could bring Etsy into the fold and monetize the transactions it already helps facilitate while immediately boosting its own presence in the e-commerce space.
2. Oculus and the virtual marketplace
I talked about augmented reality (AR) last time as a way traditional retailers can get people off the couch and into their stores. Once virtual reality (VR) gets really good no one will ever leave the house again, not even to catch Pokémon (Sorry Pikachu). Hopefully, that’s a little ways off yet.
Now, Facebook already owns the industry-leading Oculus VR platform. A virtual marketplace would go well with it. Etsy would make a nice base from which to grow a virtual marketplace. Its artisan sellers and their handmade products seem tailor-made for it.
VR will be a way to “touch and feel” products without ever stepping into a store, key for small Etsy sellers without bricks-and-mortar shops to call their own. It will also allow artisan sellers to proudly demonstrate how their products are made in a more interactive way and teach others how to make them. VR will allow customers to get to know the stories behind their products like never before. Etsy and Oculus could become perfect companions.
3. Like-minded companies
Facebook CEO Mark Zuckerberg thinks big. He thinks in terms of changing the world. It’s clear in the way he talked about Oculus in Facebook’s 2015 Q4 conference call and its long-term potential to change the way we “live, work and communicate”.
In his idealistic 2012 IPO letter, Zuckerberg says, “Facebook was not originally created to be a company. It was built to accomplish a social mission – to make the world more open and connected.” Further down he talks about his vision for the future of commerce, how “a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services.” He goes on to talk about products that are “personalized and designed around people.”
In its own mission statement, Etsy calls for “building a human, authentic and community-centric global and local marketplace.” And CEO Chad Dickerson often refers to the creation of the “Etsy economy”, a “people-powered economy” with true “person-to-person commerce” in changing the way the world shops. It is also worth noting that Etsy was recently re-certified as a B Corporation (a litmus test for socially responsible businesses).
The way they talk about their businesses are virtually indistinguishable. Both CEOs clearly believe in a much higher purpose for their two companies than what can be put on a quarterly report.
Each company also takes care of its employees, ranking among the top in best places to work. Facebook took the top spot for large companies in the Business Insider’s 2015 list. Etsy ranked sixth among small to mid-sized businesses in 2015, according to Business Insider. Contrast that with Amazon, the company most often associated with a potential Etsy takeover, and its reputation as a notoriously difficult place to work.
These are just a few examples, but the values of Facebook and Etsy appear at least on the surface to already be aligned. I believe that is extremely important for a successful merger between two companies and it has to be considered.
4. Zuckerberg and the big deal
Finally, Zuckerberg has shown he is not afraid to pull the trigger on billion dollar acquisitions, even if at the time it has Wall Street folks scratching their heads. Instagram was bought for $1 billion, Oculus for $2 billion and WhatsApp for a staggering $19 billion. It is hard to say what size offer Etsy might bring, but if the past is any indication of what Facebook might pay for a company like Etsy, it could mean significant upside even from here.
I am not an investment advisor. These are my opinions. I own shares of ETSY and FB. am bullish on both stocks, but please do your own research before investing in any individual stock.
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