Yet Another Value Podcast - Mostly Borrowed Ideas on Etsy

Episode Date: October 16, 2020

Abdullah Al-Rezwan from Mostly Borrowed Ideas (https://mbi-deepdives.com/) comes on the pod to talk about his new service and his recent deep dive that left him bullish on Etsy.You can find Abdullah on twitter here: https://twitter.com/borrowed_ideas

Hello and welcome to yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have Abdullah from MBI Deep Dyes. You guys might know I'm from on Twitter, where he goes by mostly borrowed ideas. So Abdullah, how's it going? Pretty good, pretty good. Thank you so much for inviting me, Andrew. I'm really looking forward to it. Yeah, no, I think it's going to be a great conversation. But let me start this podcast off the way I do every podcast, and that's by pitching you. You know, NBA Deep Dyes is relatively new. I think you just launched the NBA deep dives, what will eventually be a paid research service a month or two ago. You've published two ideas so far, Uber, and then the idea we're going to discuss today, Etsy. And, you know, it's just, it's exactly the type of research service that I personally, like one person doing deep dives into interesting ideas and particularly, like, you know, actually putting your money behind your research and your ideas. You know, that's the whole

point of a stock service. It's not our research and stocks. It's really not to drive research services. You want someone putting the money behind it. And I know you said you put 10% of your personal account into Etsy. So I've really enjoyed the free subscription so far. And I know it's not going to be free starting in November. And I plan on being a paying subscriber. It makes me sad because I love free things. But I love value out even more. So I'm looking forward to that. And, you know, it's free right now. So I encourage all of our listeners to give it a free trial. So that pitch out the way, can you give us a little background on yourself and kind of how you came to find NBI.

Yeah, sure, sure. Thank you so much for that generous introduction. You know, and for the record, I do enjoy your podcast. I watched a bunch of them. And yeah, I always seem to find, you know, pretty great guests. And I'm honored to be one of your guests. So, yeah, you know, in terms of my background, I am a. Originally from Bangladesh, I was born and brought up in a small city named Bogura.

I finished my high school in Bogura, and then I moved to Dhaka, which is the capital of Bangladesh. Dhaka is pretty much the center of the country. You know, it's almost 50% of Bangladesh's GDP happens in the capital, Dhaka. So everybody kind of moves eventually. you know, more or less, to Dhaka. So I went to Dhaka, you know, for my college, and I majored in finance, you know, at my college. And after graduation, I started working at a local farm

covering Bangladeshi bands in the cell side. And I did that for almost three and a half years. And then I moved to U.S. to pursue my MBA at Cornell. So after graduation, after graduating from Cornell, I joined at Madison Investments to work as a generalist in their U.S. large-cap equity team. And I pretty much had the opportunity to cover, you know, all sorts of names from like Amazon, Boeing, United Health Care, Intuitive Surgical, Insurance Brokers. It's pretty much all over the place. And I absolutely thoroughly enjoyed, you know, that process of being a generalist.

you know, having the opportunity to look into so many different industries and sectors. Unfortunately, you know, I, since I'm not American, I need work authorization to be able to work in this beautiful country. And for, you know, I don't want to get into the details of the immigration process, but I currently do not have work authorization. So I'm in the process of moving to Canada, and hopefully in a couple of months. So, you know, when I had to leave my prior role, and unfortunately, I started writing pretty actively on Twitter, like, you know, since this lockdown was started. And pretty, you know, to my surprise, I was able to kind of build a following in a relatively short period of time. And as I was thinking about what to do, you know,

with my life going forward, when I moved to Canada, whether to, you know, look for a job once I moved there, or, you know, it occurred to me, maybe I can just, you know, do something on my own. maybe I can launch an independent research services and basically that's how MBA DibDives was born I know like I said I really enjoyed being a generalist and I you know I wanted to remain a generalist and that's why you know MBA DibDives basically will operate like a generalist I was I was at Madison investments so I'll hopefully look into all sorts of names from all different industries and sectors and

publish one deep dive every month. Well, look, I would just say I'm looking forward to the service. And, you know, I think some of the smartest investors out there, you know, the first one that pops in mind is Scuttle Blurb, David Kim, who was our third or fourth guest, you know, I think they've run these subscription services very successfully. And one of the issues with these really good subscription services, and I would put Scuttle Blurb in that category is, you know, they, the value add is so much, so far below what they charge. You know, like something he does.

I don't read a lot of cell side research, but something that a Scuddle Blur piece or, you know, Jeremy Raper, who was another guest, who was our first guest on the podcast. Like, when these guys publish a piece, I value it so much more highly than anything you get from Southside kind of for free because they bake into commissions and stuff. But, you know, I totally couldn't see, like, the report you did on Etsy is as good as any cell side initiation that they're going to do. Let's dive into a little bit. So you said you're going to be a journalist.

And, you know, the first two reports, Uber and Etsy, those are TAT growthy, platform company. Did you come out on two different pieces? Uber you were bearish on. Etsy you were bullish on. But the first two pieces are growth tech. What other stocks or industries are you kind of looking at for the near future for publishing? Right.

So when I think about my investing philosophy, I typically don't try to inbox myself as like value or growth investor. I typically, you know, I see myself as just an investor. and in terms of what I'm going to cover, you know, at MBA deep dives, I'll basically look at companies that I am primarily interested in as businesses. Like, I, that's my, like, starting point. I don't start from, like, looking at their multiples of valuation or, you know, or, like, you know, what exactly is going on in terms of pure, you know,

your number spaces. It's basically, it's, I purely start from whether I'm curious, about this business, whether I would like to know more about this business. You know, many times, you know, market give you opportunity. Like if you do your work, even though, let's say, a particular name is trading at 10 times, 20 times, 50 times revenue multiple, you know, sometimes these stocks do experience drawdowns, right? And market, Mr. Market can give you opportunity if you have done the work. If you just give up saying, oh, this stock is trading at 50 times, there's no really point in

covering this particular name. let's just move on to something that's trading at, you know, two times, you know, like 10 times, you know, earnings multiples. I typically don't try to, you know, look at it, you know, from that perspective. I am generally going to cover names that I am interested in. And frankly speaking, I will also take requests from many of my subscribers. So, you know, I am very fortunate to be able to build, you know, I know it's only been like two months, not even two months, and there's a long way to go,

but I was just looking at some of the people who subscribe to my services, and it's very humbling to look at the kind of quality of the subscribers. So obviously, you know, there are a lot of subscribers who I deeply admire, and if they request me something, I may eventually cover those names. It may not happen instantly. It may not happen the next month or month after that, but, you know, it may, it may happen in month six or month eight, right? So that's how I'm going to approach it. And I'm approaching it with a very open mind, not, you know, boxing myself with value or growth.

Just to give you context, my, I guess, largest position in my own personal portfolio is Barkshire Hathaway. I own companies like Dollar Tree or insurance brokers. So, you know, those are typically known as, you know, value stocks, right? So it's my own personal portfolio is a mish-mash of value on growth names. And I imagine that, you know, over the long run, MBA deep guys will cover all sorts of names. But it is true and it is possible that there might, you know, it may be bent towards more to that, you know, growth names because it's, you know, the businesses that are growing super

fast, growing, you know, pretty rapidly, usually they turn out to be more interesting than the one that is just, you know, growing at two, three percent every year, right? So it is possible that, you know, I may lean towards more growthy names, but I, like I said, you know, it doesn't mean that I will box myself out of the, you know, the typically value names that you see in the market. No, look, I think there's two things there that I just highly, like the growth names, I agree with you. I think a lot of the. growth companies are a lot more interesting. And, like, one of the reasons I started this podcast is I would always research these growth names and I'd have like, like, good feelings to be like,

oh, these, this thing, I think it's got a really bright future. But I'd look and say, oh, you know, five times revenue, 50 times EBITDA. And I'd pass and I would be investing in these, you know, eight times earnings. And every time, like, I'd just be like, oh, I just think the eight times earning stock, it's got an okay outlook, but it probably deserves straight over 12, 14. And, you know, the past, maybe it's just the environment we've been, but the past five years have thought it's like eight times earning stock probably goes to six times arning and then the 50 times EBDA, four times revenue stock goes to 500 times EBDA. So one of the reasons I started this podcast was, uh, you know, a lot of the investors have taught me so much and have really helped me

like, you know, I think I know you're a bearish Uber, but I think that's Mara Chbilly on Uber or Elliot Turner on Dropbox. It's just been really fun to, to talk and kind of like expand your mind. And I think that's one of going to be the great thing about the service, just researching things that are interesting. Let me talk, ask more than. So every stock you mentioned, you know, U.S. focus, I heard Berkshire, Etsy, there was another one you mentioned when we were Dollar Tree. Like, all of them are U.S. focus, you know. And when I look at that, like, that's great. I'm a mainly U.S. focused investor, but you're from Bangladesh, you know, South Asia. There's much less coverage over there. I think it'd be tough to launch a research service

entirely focused on Southeast Asian stocks. But why not go, you know, kind of where less people are fishing and use some of your local area expertise and look more at Bangladesh or southern Asian stocks. Right. I frankly speaking, I'm approaching this MBA divdives is more from what I'm curious about perspective and less about how I want to make more money. It's definitely possible that if you start fishing in, you know, in kind of undiscovered areas of the world, like, you know, Bangladesh would be probably one of them. It's possible you can probably make more money investing in those markets if you, you know, stick to it, although, you know, that can be questionable in different circumstances,

but, you know, markets in Bangladesh is obviously much more inefficient than markets here in the U.S. But like I said, you know, just to go back to my previous point, at the same time, businesses are probably infinitely more interesting in the U.S. what you experience in in those markets. So, you know, I am about to hit 30. I have plenty of time to look at all sorts of markets and companies. At my, you know, you know, when I'm 20, 30 years old,

I want to spend more time understanding some of the, you know, world's best companies. And I'm open to, there's nothing that you'll stop me from looking at or, you know, even covering a Bangladeshi and name sometime in the far future. That is definitely, like I said, I honestly, as an individual investor, I really don't have to box myself to anything. But I do imagine that, you know,

it's probably 80 to 90% of even more of the names that I'm going to cover will be U.S. focused primarily because these are the businesses that primarily, you know, deeply interest me as an investor. But I'm definitely not claiming that, you know, these are the only possible opportunity sets that's out there. Yeah, markets like Bangladesh or India, they're obviously, I'm pretty sure there are great companies out there as well, and, you know, they can be interesting as well, and I'll hopefully eventually get to some of those names as well.

No, it's just, you know, like, I think four years ago, right now there are tons of banks that trade below tangible book value, right? Like Wells Fargo trades, I think, for like 60% of tangible book value, but you can, you You can go find small community banks that trade for 70% of book value. And all of these guys, like, have pretty clean balance sheets. They're reporting decent earnings in ROE. And four years ago, I feel like I would have been going crazy for these things. Like, oh, my God, backup.

But right now, like, maybe it's just me. Maybe it's just a sign of the markets. But I increasingly find myself, like, why am I going to look at those where if I get, like, you know, an Etsy right? Like, it's a 10 bagger in what, like two or three years, right? Like, you get the Etsy right, and it's a 10 bag. Or go look at a small Canadian company where I think, like, a lot of the, international, smaller firms are just crazy underpricer.

There's some just wild prices out there. So I'm kind of with you. I'm increasing like, let's go look at really interesting tech growthy companies or let's go look at really quirky, like kind of smaller international companies. The place I'm increasingly avoiding is about four years ago where I would have spent myself with time like trading below the change of a book value, like classic value investments. Yeah, I mean, I like recently commented it to someone's twist. that, you know, we will never out of opportunities, we'll never run out of opportunities.

You know, if we don't have enough, you know, retirement money whenever, you know, 70s, 80 years old or 60 years old, it only because, you know, we operated in a market where just there were not enough opportunities. There will always be opportunities in every possible market in every geography, right? So I'm not in a hurry at all. Like, you know, those banks, those international markets will stay there and there will be opportunities all the time, you know, even if it's like five or ten years down the line. So I am taking it very, you know, in a very slow manner. So, and that's why I just wanted to focus more on what I'm curious about,

what I am interested in learning more. And, you know, as I, and it's possible, like I said in my website, that it's possible of the next 12 deep dives, I may be only bullish about maybe two or three names, right? So, and that's, that's, that's a real possibility. And, you know, we can't really, I don't think you can, you can, you know, pitch strong, you know, like, you know, stocks are like, you know, very bullish ideas every month. It's just very difficult to do so.

So I just, you know, want to approach this. I will keep learning about different businesses. And within that process, I will stumble upon ideas where I would see opportunities. Fortunately, Etsy I felt is one of the stocks, and yeah, I put my money where my mouth is. Well, we'll talk Etsy one second, but I would just say, like, you know, that's one of the things I've liked most about something like Settle Blurb, where it is a research service, it is not a stock pitch service, right? Like, he gives you an overview, and sometimes you can kind of feel he's bullish or bearish on something, but he's just there to give you an overview. And, like, I'm paying to, I'm not paying for stock ideas per se. I'm paying to increase my knowledge. knowledge. And I see a lot of that in NBI as well. Obviously, you said you bought Etsy,

but what it is, it's a deep dive into Etsy. It's a deep dive into Etsy or Uber. And some of the fundamentals behind them, it's not necessarily a pitch. And I quite enjoy that. Yeah, I mean, I guess one slight difference from, let's say, Scuddleberg's approach to mine would be, I think I'm more explicit in terms of my bullish tones. You know, I just wanted to make clear to my readers where, you know, where I stand so that they understand my possible biases or, you know, like, you know, some blind spots when I was looking at the name. I felt that would be easier for the reader to, you know, kind of guess where I am coming from. And that's why I'm just much more willing to, I say, I guess, you know, to explicitly state. or whether I'm bullish or bearish.

But, you know, what Scuttleberg does, and he does is so brilliantly, you know, he definitely, you know, explains in much more detail about the businesses, which I guess most professional investors, at least, are much more interested. You know, if you are running a fund, you're probably not really looking for, you know, stock pitches from every random person in the internet, right? You are much more interested in understanding businesses and then taking a call yourself, whether you would like to, you know, take the position. All right, last one, and then we'll turn to Etsy.

You said you take requests. You know, one of the stocks that has obsessed me the most over the past month and for actually the past three to four years, IAC's obsessed me the most of the past three or four years. And over the last month, like something just clicked for me with Angie's list. And I've gotten extremely bullish on Angie's list. I don't know if you've looked at that or not. But if you haven't, I'm putting in a request for some Angie's list coverage at some point in the future.

Yeah, sure. As a matter of fact, I actually own an IAC, so I do have exposure to, you know, whatever happens with Angie going forward. But, you know, admittedly, I haven't spent as much time on Angie as I have, like, let's say, on Etsy or Uber. So, yeah, it's definitely a name that I have my own interest to, you know, dig deep into sometime in future. Maybe sometimes within like next three to six months, I'll probably do a deep. dive on Angie's list. Yeah. One of the things that worries me the most about IAC is like every smart growth investor I talked to over the past three years, I would say is generally pretty bullish on IAC. And like, you know, this time last year, IAC traded below the value of its match

and Angie's list stock. And I was kind of having trouble because I was like every single person I talked to is bullish on IAC. You had to change the trades for a discount, what's going on. And now IAC spun off match and it's like Angie is about 50% of the value there. And still like every person I talk to is pretty bullish IAC, to be honest with you, some more than others. And I just really like, it feels like the ultimate growth, growth or value investor like hedge fund at a hotel. But, you know, I just, I love the assets in there. But anyway, this podcast is not about IAC as much as I wanted to be. This podcast is about Etsy. Most people listening to podcasts are probably somewhat familiar with Etsy, though. I still think there are some misperceptions

about it. So why don't you just give us a quick overview of what Etsy is and kind of what attraction to the company. Right. So it's a two-sided online marketplace connecting millions of buyers and sellers, you know, selling handmade, vintage, which is like more than 20 years old and craft supplies. So it's a niche within the, you know, broader e-commerce market. So they don't sell every possible thing that's available in the retail market. So they typically sell only the vintage craft and handmade items.

And like I said, it's a two-sided marketplace. So it's the owner of the marketplace. They don't have the first-party business that, let's say, Amazon has. So it's just, you know, connecting the buyers and sellers and, you know, being a facilitator as a middleman. So they are typically more U.S. focused. I think only 36% of their gross merchandise sales is international as of 2019. They identify six countries as their kind of core geographies, namely U.S., UK, Canada, Australia, France, Germany.

But, you know, if you are in New Zealand or Finland or Austria, you can definitely go to its sea and start selling, or you can go to its own and buy something or order something from a seller based in, let's say Ohio in the United States, right? So you can do that, but they identify those six markets as kind of their core geographies. And yeah, in terms of their gross merchandise sales, it's last year it was almost five billion,

I think because of COVID-19 and we are kind of all forced to buy everything online. So it's probably going to reach somewhere around eight and a half billion. So almost more than 70% growth year over year in 2020, compared to you in 2019. So, just, and I know Amazon launched competitor, which we'll talk about in a little bit, but just for, like, I looked at this company a few years ago, and much to my detriment

passed on them. But, you know, one of the things that's up with me, I'm not a big shopper, you know, but if I'm going online, like, if I'm, let's start from the buyer's perspective. If I'm a buyer, you know, I personally, I would just go to Amazon, get free, free two-day shipping and have whatever I'm getting delivered straight to me. Why are I going to Etsy over Amazon or eBay or Walmart.com? Yeah, I mean, so it's just a kind of customers or kind of, you know, buyers that are somewhat different from, you know, let's say, a typical buyers like you at Amazon. Like, I'm probably more like yourself.

I also, you know, typically end up going to Amazon or, you know, some other like eBay even. But, you know, Etsy's customers are somewhat different. First of all, like, if you're interested in handmade items or craft or vintage items, those three words are associated with Etsy much more than it is associated with, let's say, Amazon or eBay. Like, if you're buying gins, like, you are not going to, you know, go to Etsy. It's only if you're like, you know, something quirky, something more uncommon, something unique, you know, you're looking for something handmaid. The first name that really comes to your mind, you know, is Etsy.

Now, it may sound controversial to people. I actually don't think they are really a competitor of Amazon or eBay or even, you know, IG shopping. because to be a computer for Amazon or IG shopping or eBay to be a competitor of XC, they first have to grab the mindshare of the buyers. Like when I'm thinking about craft items, supplies, or vintage or handmade items, they have to kind of make me remind that Amazon is also a possible option or IG shopping is a possible option. If you go to IG shopping and search something that is also available at

Etsy, you would see, you know, like, you know, there are all sorts of names that are not like handmade or that are branded items, right? So it's, if you, you know, there are a lot of customers who care to care about, you know, small independent businesses, right, care about much more about supporting them. And if you are one of them and if you're looking for something, like I said, quirky, you would end up in Etsy rather than in Amazon and eBay. Just two things there. I just want IG shopping. You dropped that a couple times, Instagram shopping, right?

Right, right, perfect. And then the other thing, you know, you mentioned handmade a couple times. And one of the cool things about Etsy, I think, and again, I'm not a big shopper. You can correct me if I'm wrong, but is you can actually, like, I go shopping and, you know, get a painting to put up there because everybody's looking at my podcast and seeing a barren wall behind me. I get a painting and I can actually communicate with the seller and say, hey, this painting, can you put Andrew and Alicia in the middle of it or something and get it customized that way, which is something that Etsy allows for that I don't really think you can do within Amazon or an eBay or something? Can you correct me if I'm wrong or am I right there?

You are absolutely right. I mean, if Amazon starts allowing that and those sellers would go crazy because the volume at Amazon is substantially higher than the volume, you know, a third-party seller experiences at Etsy. I mean, I want to make one thing clear that the end markets of, you know, the broader retail, which is the end market here, is just, you know, insanely large market, right? It doesn't have to be either or, like, you know, it's not really either Amazon or Etsy or eBay or Etsy or IG shopping versus Etsy, right? All of these, you know, companies can be successful, obviously some more so than the others. but, you know, they all can coexist. It's just, you know, we're talking about a trillion, trillions of dollars of markets here, right?

And if you think about it, so last year, based on 2019 numbers, I was estimating that Amazon, like, Etsy is basically 1.5% of Amazon's, you know, GMS, right? And 5% of eBay's GMS, right? In June, that's gross market sales. That's the entire kind of market volume. Amazon does $100 billion in sales a year or something on the Amazon website. Gross merchandise sells. Yeah. And, yeah, Amazon does actually like something like $2.60 to $70 billion.

Yeah, I was just closing it. Right. And eBay does like $90 billion. And again, these are kind of dated numbers in a basement 2019 numbers. Obviously, all those numbers have increased a lot, you know, during this pandemic. And Yitzi was $5 billion last year. So it's, you know, it's a, it's a, it's a, it's a, it's a, it's a, it's a, it's a, it's a, it's a, it's a, it's a, it's a, it's a, it's a, you know, it's a, it's a, you know, even eBay. And I, I don't think they're really, you know, you know, it's, you know, even, even Facebook or i. You have to understand, like, when Mark Zuckerberg is looking at this opportunity, this e-commerce opportunity,

he's not interested in 20, 30 billion-dollar markets. He's much more interested in a trillion-dollar market because the company he runs is, you know, $700-800-billion market cap. So, you know, adding a $20 billion marketplace or, you know, being successful in a $20, 30-billion dollar marketplace, doesn't really move middle at all for either Zuckerberg or a basis. So they are competing at the, you know,

at the most broad definition of, you know, e-commerce and retail. And Etsy is going to continue to focus in a very niche segment of that. And I talk about, like, even in 10 years, even if Etsy continues to grow at a pretty rapid pace, it's probably going to be, you know, $25 to $30 billion in a GMS in 2030. And by the time, Amazon will have a trillion dollar of GMS. So it will, you know, right now it's 1.5% of their GMS. 10 years from now, it will probably be 2.5% of their GMS. It's still going to be pennous to them.

and Amazon is not going to, you know, stop and focus on handmade items at the expense of their core marketplace. Yeah, well, I want to come back to the competitor argument because I do think it's an interesting point and I agree with what you said, but I disagree with something. But just to focus on the size, like one of the things that struck me in preparing for this is, I was reading a transcript with the CEO and he said, look, you know, even after all this growth, like we're going to do $2 billion on home sales goods this year. And home goods is by far our largest category. And he was like, look, if you look at $2 billion in the grand scheme of all the home goods that get sold, I think it's like, as you said, it's 1% of the entire market. Like it's absolutely nothing. You know, like it's very difficult for Amazon is just, hey, you want to get this cost, you want to get a counter? Like, we're going to ship 500 of them to you.

But, you know, if you want something custom, there's not really a place for Amazon to do that. and Etsy allows for a lot of, as you said, a lot of talking between the buyer and seller and customization that Amazon's platform just isn't set up for that. The other moat they said, and I'd love to hear what you say about, what you think about this, and I think this will come into competition as well, is when you're looking on Etsy, because there's so much customization, search is incredibly difficult, and they talk about how their technology for search, like Google is not going to be, it's almost like the Google, right, where it can handle all these tail risk searches. Amazon's not set up for that. So can you just dive into how.

search and customization actually increases their mode there? Yeah, I mean, it's definitely not as easy just, you know, typing a product on the search bar. You know, there's a bit of a learning curve, even from the buyer's perspective, to really know what exactly they're looking for, right? So it takes time and like I said, there's a bit of a learning curve associated from the buyer's perspective. And Etsy has been trying really hard to really improve the search experience of the buyer. Like, it may sound pretty easy fix, but they actually started, you know, kind of sorting the product based on, like, you know, free shipping and all that, which is, you know, which sounds pretty obvious that they should have probably done, like, years ago.

But it's actually a pretty recent addition, right? The fact that, you know, they were still doing so well, even without this, kind of obvious fixes, right? You know, if people obviously want to probably, you know, buy from sellers who offer free shipping services and all that, but, you know, it's been just been added, like, you know, probably a year ago. So they have been working on how to, like, improve the search experience.

And also, and I mentioned in my piece, they used to focus more on, like, bottom of the funnel marketing. Like, you know, if you search, like, vintage scarve, on Google, right, and you know, and you probably will come across its its marketplace and you will go to Etsy and buy, let's say, vintage scar from Etsy. But you may not realize that all the other possible products that you could also buy from Etsy. So, you know, and Etsy did not really invest in those sort of marketing messages before. Right. Now, now they're trying to, you know, put their money into work in terms of creating a more broader message and kind of educating

the customers, the buyers, that there are a lot more things than just in a vintage scarf or, you know, like our small, quirky items that you can buy from Etsy. You can, your opportunity, like in your product set or categories are much broader than that. And I think because of the COVID, that education has kind of exponentially accelerated. compared to what they experienced, you know, like last two, three years ago. So let's say on that because there are actually three bear cases I want to talk on. And this gets to the first one, which kind of will bleed into the second one. But, you know, I think one of the bear cases is, look, if you're a customer and you go on to,

like Etsy trades at 10 times sales. So a piece of the bear case is obviously just valuation, right? But I do think a large piece of it is 10 times sales for a platform, you know, that actually might make sense. But they say Etsy, yes, it's a platform. but it's not a platform like Amazon or something where there's a lot of repeat usage, right? Like for Amazon, if I go on there, I might get subscribe and save to have protein powder and bottled water shipped to me or something, right?

Like it drives a lot of habitual repeat uses, whereas for Etsy, and I'm not a shopper, so maybe there are some people who go and buy vintage scarves once per month or something, but if I look up vintage scarf and I find Etsy and I go buy something, like that's a one-time purchase. And the next time I want something like their customer acquisition cost doesn't result in that high of a customer lifetime value because they don't get those habitual user purchases, I think would be one piece of the bear case. So am I right or wrong there? And could you kind of address that? Yeah, I mean, there's certainly element of truth in your concerns. So only five

percent or five and a half percent of their total buyers, total active buyers are actually habitual buyers, who they define and who are basically defined as, you know, buyers who bought from Etsy more than six times in a year or spent like more than I think $200 per year. So they are like only 5.5% of the total active buyer base. So they are definitely a small minority and many people like 40, 40, 50% of the buyers are basically one-time buyers as you mentioned. So there's definitely, you know, element of that for sure. and like I said, we're not looking at a $500 billion market, right? We need to acknowledge the extent of the debate.

You know, if it's a debate between, there's a huge difference between the debate between, let's say, whether it's $100 billion, a $150 billion market, and we talk about like this 50%, right? And there's another debate whether it's $100 billion market and $500 billion market, right? I disagree if someone says it's a $500 billion market. I don't think it is, right? But I'm willing to say it's actually probably closer to $150 billion market than $100 billion market, right? And because we're talking about such big numbers, I think, you know, those nuances can get lost that, you know, you may not need a lot of habitual buyers for Etsy to be able to continue to outperform or continue to, you know, I will continue to be able to generate compelling returns.

And I think, you know, overall, the biggest competitor for Etsy is not really, you know, even today, is not Amazon or eBay or IG shopping. It's actually the physical stores. So 45% of the buyers who buy, like people who buy craft items or handmade or vintage items, 45% of them go to Etsy. And 30% of them go to actual physical stores or craft fairs, right? and 15% of them go to the seller's personal websites. It's a Shopify sellers, right? And 11% go to Amazon, eBay, and all other marketplaces. So at the end of the day, you know,

Etsy's a primary competition is not really Amazon, it's eBay or some of the marketplaces. It's actually the physical stores. And I think I have high confidence that if the competition is against those physical stores or craft fairs, it is going to win their competition. Yeah. No, look, I think going back, I mentioned Angie's List. And, you know, for Angie's List, they're trying to connect a person with a plumber or an electrician.

And historically, that's been done by word of mouth referrals, right? Like, I would ask you, hey, who's a good plumber? You would tell me and I call them up. And what Angie's List argues is, hey, this is moving online, right? Like, people want to go and basically see, hey, here's a plumber who's got 20 goods reviews. Here's a time you can book them. Done. And I think it's the same for Etsy, right?

Like the one thing that the internet has talked to is time and time again is convenience and speed wins out. And like for Etsy, I agree with you. Though there is something to, there's a treasure hunt feel to going to a craft store and kind of searching that Etsy's trying to recreate a treasure like field on the site. But, you know, there's something to being in person and kind of sifting through the goods. But what's sorry? It's not going to be, you know, physical stores will continue to play a very strong role for a long period of time, you know. it doesn't have to be, you know, 80, 20. It can be, like, even if it becomes, like, you know, 60, 40,

that there's still a lot of room left for, you know, marketplace like it's, to continue to grow. And there's, and you discuss TAM, but there's also probably enlarging TAM, right? Like, for a craft store, like, people actually have to drive 30 minutes and go do that search and it takes it a pretty long time, whereas if you've just got it online, like, that should just enlarge the TAN because it's easier to search and pop on. You can make that custom request a lot easier. you're a lot quicker.

You know, just to kind of, you know, touch on, I guess, the TAM aspect, like, if you're really interested in vintage items or craft items or handmade items, you know, Etsy allows you to look at handmade or, you know, these vintage items from all over the world, right? It's not just, you know, there's a global appeal. And that's why I feel like Etsy is a much stronger platform or marketplace business than, you know, NG's is because they enjoy not hyper-local, but, you know, more cross-border network connects.

Like, you know, if Etsy wants to go to, if it wants to go big on Austria, for example, you know, they really don't have to make sure that, you know, there are a million of, like, you know, there are like thousands of Austrian sellers on the platform. They can just focus on the consumers, on the buyers. They can just spend their marketing dollars. on that and they can just, you know, order things from neighboring European countries or from America or from, you know, some other different parts of the world. So there's a global appeal of, you know, these handmade items which makes it much easier for Etsy to scale a lot faster,

right? And at the same time, you know, you know, unlike Uber, their supplies are differentiated. Like, you know, since these are not commoditized products, you know, every seller is basically putting their own thoughts, ideas, culture, and philosophy into making those products and items, the suppliers basis is extremely differentiated in nature. Like if tomorrow, 10 million suppliers go to, you know, Etsy platform and start selling their products, that will, you know, that will significantly improve the experience. of the active buyers on the platform at Etsy. We cannot say the same thing for a platform like or marketplace like Uber, right? So if you significantly increase drivers base in a particular joke, if you increase like drivers in New York City by like a million drivers on Uber platform, the benefits to the riders, yeah, it's definitely there are some benefits,

but there's also an asymptote that can be reached at some point, and the marginal benefit may decrease pretty fast after a certain point. Well, number one, how dare you be smirch Angie's list? That's number one. No, I hear what you're saying, but let me flip it around a different way, right? So Uber and Angie's list, what we're talking about is a hyper-localized network, right? And Etsy, what we're talking about is... And that's to be clear, Andrew, there's definitely a value to that.

I'm just comparing these two different businesses. I'm arguing that one business is better or superior than the other, but it doesn't mean that, you know, these marketplaces like Angie's List or Uber are worthless or, you know, they don't have any value. They obviously have any value, but it's just, you know, much more difficult to scale and probably inferior in terms of business, you know, as a marketplace compared to, let's say, Etsy. So I hear you, though, I think there is a counter to that, which is like Etsy, right? because it's, the suppliers, because they're, because the suppliers are global, right,

like they do have an incentive where, hey, if I'm doing a lot with handmade scarves or something, right, I can opt out and I can go and create my own handmade, like the shop fight thing, right? Whereas for something like, particularly Uber, particularly at some point I believe Angie's list suppliers will run into this problem. Like, if I'm a car driver, even if I'm the best car driver in the city, if I pop off of Uber, boom, my business is done, right? So for Etsy, I do think there's, there are alternatives, particularly for their best people, whereas for Uber, there's just absolutely no alternative for the suppliers because of that hyper-localized network. So I do, I don't necessarily disagree with you.

I mean, I think Etsy. That point is actually, you know, I accept your point, and I absolutely agree. You know, there are pros and cons to, you know, both both. you know business models in both marketplaces uh you're absolutely right you know there is a risk that if you were really a fan of a particular you know uh seller on Etsy and he fall in love with the products that person makes uh yeah there's a there's a huge possibility that you would rather you know and the seller might actually ask you to go to his his or her personal website and buy it directly from from their website so that he or she can bypass the take rates or the you know

transaction charges that Etsy charges on the seller, right? That is a possibility, and it is a, you know, it is one of the risks that I do think Etsy might face because of this, you know, conversations between buyers and sellers and the customized nature of the platform. It is definitely a part of the, you know, one of the risks that, you know, you have to consider. I take your point, I accept your point. No, and look, I think Etsy is a great business to a lot of scale. I just, you know, it is one of the things like a high.

hyperlocalized market. It obviously doesn't get as much scale and it makes it much more difficult for one of them to move in Australia. At the same time, if you dominate hyperlocalized markets, like for someone to come in and beat you, like if I'm going to go in and beat Uber, I can't just beat them in America. I have to go beat them in New York City. Then I have to go beat them in Dallas. Then I have to go. So it is an interesting version. And actually, speaking of that, that kind of brings us to the third. Oh, no. Actually, we're not even on a competition, let's talk about the second bear point, which going back to the customer lifetime. The second thing is, look, this is expensive in its own rate, right? This is 10 times revenue, which 10 times revenue is the new

10 times even out, right? It's a marketplace. Everybody wants to buy marketplace for 10 times revenue. But I think a second piece of the bear point would be, it's not just that it's 10 times revenue. Revenue has been hyperinflated by COVID, right? Like Etsy, of all the online suppliers, Etsy may have been the one that benefited the most in terms of growth from COVID. and I think what a lot of bears are saying is, yeah, they're probably going to see a sustained boost over time, some people are in it, but it's not going to be this big, right? Like, in this year, they're going to sell a billion dollars in masks alone, and fingers crossed in two years, that billion dollar mass, the revenue will basically round down to zero, right?

And that's a lot of revenue loss for Etsy. So a lot of this home decor that people are buying right now, yes, it'll grow, but it's probably at a peak right now, and they're going to lose a lot of that once COVID kind of blows out. So how would you talk to a bear who's saying it's not just expensive, it's expensive on inflated matters. Right. I just want to touch more on the valuation space. And I just want to talk more about like how I think about valuation.

So, you know, I often joke to with my friends that valuation is just like religion and politics. Everyone has an opinion, right? You know, and it sounds very interesting to have a conversation around those three topics, evaluation, religion and politics, but nine out of ten times, people really don't change their opinions. And, you know, it oftentimes become not a good faith discussion, right? So people who talk about, like, you know, 10 times revenue is expensive. And I often see this quote, you know, flying around Twitter, this stock, sorry, Scott McNally code, was the CEO of Sun Microsystem.

And he talked about, like, you know, 10 times revenue, how do you, what were you thinking? Why do you 10 times revenue? Eat that quote. Hate it. Absolutely. I'll be honest. You know, the first time I read it, I found it very compelling and it almost made sense to me, right?

And then I kind of, you know, taught myself that actually it doesn't make any sense at all. So, yeah, I mean, I see like two groups of, you know, people when it comes to evaluation. Like one, I was like just hyper-focused on valuation all the time. Like, you know, and I would like to almost ask them, like, okay, fine, 10 times is expensive. Like, I don't know how you came up with that. like there's like you know we can't really look at a multiple and just say it's expensive or cheap right if it's okay if it's 10 times if 10 times revenue is expensive like what do you consider as cheap is it eight times five times and if it's let's say let's say it's five times like you know

why do you think mr like mr market is not a charity right the market is not a charity like you can't expect to have businesses like you know in a quality businesses to uh trade at a dark chip level, right, right? You know, it will be uncomfortable for sure. And I do think, like, you know, if I were looking at Etsy at time, it would obviously be more uncomfortable to buy at let's $150, then I bought it at 110, right? And those are the things that, you know, investors today have to wrestle with every day, whether this is the right valuation, because valuations do matter. And right, and there's this other group of people who thinks, you know, it doesn't matter what you pay at all, right? You know, they can just look at a drawing

on a page and put $20 billion market cap on a company, right? So I obviously, you know, I think I would deeply disagree with both those people. I do think valuations matter. What you pay obviously matters. But you can't just look at a multiple and directly conclude whether it's expensive or cheap. There's no such magic formula, right? So you have to kind of do the work and come up with the conclusion. So basically, the way I look at my valuation is I, probably have like, you know, two-step process. One is like, you know, it's what I call like belief and think process. So first step is what do I have to believe to, like, what do I have to believe to make a decent

IRR on this investment, right? And the second step is, do I think, you know, those assumptions that I had to, I had to believe to make that decent IRA are reasonable, right? I don't believe I have some special insight, you know, in terms of where Etsy will be five years, ten years down the line. I can't possibly forecast those numbers with any more accuracy than you would, right? So to me, my first starting point is what do I have to believe in, like what sort of numbers it's he has to put up to be able to generate a decent IRA?

And the second step is, and I eyeball those assumptions and then take a call whether these assumptions aren't, you know, credible or reasonable. And my answer was obviously that, you know, I do think these assumptions are reasonable. To kind of touch on your point about the mask and, you know, like a billion dollar of, well, so far, I think, till Q2, they sold like $346 million of masks, yet may reach to a billion. Let's just say it's a billion dollar of, you know, mask sells in 2020. That's GMS. That's not really. revenue, right? So revenue is basically 16% of that. So it's a $160 million of revenue on that number. It's also true, non-Musk sales grew 93%. Right. So it's not just a mosque, you know,

as you said, the home furnishing items and all that. It's not easy, you know. I think it's fair to agree that it's not easy to forecast what numbers will be in 2021 or 2022. even, right? But if I look at it, like since more and more people are now aware of the marketplace and they have kind of explored what all the possible items they could buy from this marketplace and I think the CEO mentioned how breadmaking products of all things become widely popular, obviously breadmaking products would probably not going to be sold as, you know, as well as they did in this year. But it will be something else. you and I cannot sit here and predict those numbers, and I can tell you, even Etsy management

doesn't know, right? So it's, and that's the beauty of the model, right? The third party sellers, it is their job, it is their responsibility to figure out what exactly is going to work in 2021 or 2022, right? And they will come up with this product. And that is the bet, you know, and that's the power and the beauty of the marketplace. And I think that's, that's why it's continued to go into work. Whether it's going to be 15%, 10%, it honestly speaking for long-term shareholders, I don't

really sleep over it. Like, you know, maybe it will have 20% drawdown in next year. That's totally fine as long as the, you know, much marketplace remains, you know, in a decent shape and management continues to execute. I don't see why, you know, a starting slowdown and growth in a particular year would cause me to lose sleep. No, look, that was so well said.

I'm actually envious because I was ready to make the same point. But the beauty of a marketplace is you don't know what the next big thing is going to be, but people are going to transact it over your marketplace and you're going to take a tax. You know, as you said, and May, nobody thought it was going to be bread baking. You know, I think of something like the Apple App Store, like, among us is the hottest game out there right now. It was released two years ago and no one played it. No one knew it was going to be the big thing, but the great thing about the Apple App Store is they're taking a cut of every sale on that game. So it's the beauty of a marketplace.

Let's just, I'm cognizant of time here, but let's quickly touch on competitors. you know, I think when I say, hey, you're an online, it's an online retail marketplace, right? And when you hear that, your first thought is Amazon is going to destroy them. And I believe Amazon actually tried to move into this space a couple of years ago. So why don't you just touch briefly on the Amazon risk and how they're foray into kind of hyper, not hyperlip, into custom homemade goods, right? Yeah. You know, sometimes it's very helpful to kind of look back.

and see what happened. Like, you know, even today, people still talk about Amazon and eBay or even Facebook as potential competitor for Etsy. But this game has already been played, you know, in last five years. So Etsy, you know, came to IPO in 2015, and six months later, Amazon Handmaid was launched, right? So it's been five years. And when they launched it, Etsy was cut in half within three months, right?

And from the lows of 2016, it's actually 20-bagger, right? So this game has already been played. And I think, to me, the verdict is clear. You know, Etsy has been a winner in that particular segment. And like I said, you know, Amazon probably shouldn't care about the success of such a niche when they have opportunity to go after, you know, trillions of dollars in a market, right? So it's just the size of the market that, you know, marketplaces like Amazon, Amazon or Facebook or even eBay, you know, operates is just very different in terms of scale

compared to Etsy. And, you know, I don't see why the next five years will be any different from the last five years, right? Amazon couldn't compete with Etsy. And it's his marketplace basically grew almost three, three, four times in last, you know, six, seven years when Amazon was obviously, you know, raging through all the, you know, retail marketplaces. So I don't see in the next five years or ten years it's going to be any different. So that's why I know I'm very comfortable with the path going forward.

The one thing I would push back on you is I agree. I think the game's already been played, right? Like Amazon launch handmade and failed. So I think the moat has been not completely settled but largely settled at this point. The one place I pushed back on, hey, this is too small for Amazon to worry about. Like I don't think that's true because if you're marketplace, like, if Amazon could eat this, Etsy $17 billion of value, Amazon would not have to, if Amazon could invest it, if they could invest $2 billion to kind of take down Etsy and add $15 billion, like maybe Amazon as a whole doesn't care, but I can guarantee you there's a product manager or something who cares over there, right? So I don't think there's anything too small,

like Google, if you look at the grand scheme of Google, the Expedia type OTA travel was pretty small compared to Google, but Google obviously wanted to eat that because they're a platform and they could profitably extend for very little investment instead. I think the issue is can you can you do it and can you do it? And the answer is no. Like Etsy has a marketplace. They have that flywheel already spinning and to kind of extract all the buyers and all the sellers, it's chicken or the aid problem that can't be solved. The one competitor, and we mentioned this earlier that I think is interesting, is Instagram. You know, when I think about Instagram, I see a lot of of things like they've got a huge user base it's a very visual product i could see a lot of ways that

that could be an at sea competitor at some point can you just talk briefly on instagram as competitive threat right i mean there's we don't know much about exactly how instagram shopping is going to you know going to operate uh you know it's it's just a very recent launch but i think uh i think i kind of also touched upon this uh i know on in one of my answers earlier I think it's going to be, it's likely, likely to be similar to what happened with Amazon handmade. Like I said, in the search experience, it's very difficult. If you're looking for a handmade or vintage item, and if you're looking for that on an IG shopping or in a Facebook marketplace, it's not going to be an easy experience for you.

Even at Etsy, it's not an easy experience, right? You still have to kind of, you know, look for it. you can still have to know what you're looking for when the whole marketplace itself is just primarily designed for for these handmade vintage items so for Facebook or IG shopping to kind of in our focus on that when they're also targeting this broad e-commerce retail space right it's going to be even more difficult and even more cumbersome from for the customers to to really, you know, to have a decent and facile experience when they shop around IG shopping. Again, like, you know, it's still early days.

It would be interesting to see what happens. It is it possible that, you know, they may come up with something entirely different. Maybe IG shopping can come up with IG handmade or something like that, and it would be interesting to see whether, you know, they are any better than Amazon handmade was. So, yeah, I mean, as an investor, as investors in the stock market, Do we have to be on our toes and kind of follow what happens in a different, you know, comparative environment, different market environment? But so far what I have seen in the last five years and starting this company, you know,

over, you know, a few months, I think I'm comfortable in saying that Etsy is likely to remain the leader of this marketplace by a significant margin. You mentioned Etsy selling off by 50% when Amazon launched. Amazon handmade. And that reminded me of two or three years ago when Facebook launched Facebook dating and matches shares sold off by 40%. And I remember, I mean, a lot of people were saying, I mean, just no chance. And I, you know, personally, I would just love it if Instagram launched, Instagram handmade or Instagram local or something and Etsy stock sold off 40%. But it's one of the look for now. You know, like if a big company says they're going to try to attack something with a

flywheel, like always be, you want to be wary, but in general, the market sells off hard. and it's very difficult to attack one of these flywheels or one of these platforms. I think Etsy that we haven't covered that you think we should be talking about or anything. I think, you know, I also wanted to focus on the role the new management played, Josh Silverman, like he became CEO in mid-2017. And the stock was actually, you know, wasn't really doing great and not just, you know, for Amazon or things like that. They also were not executing well.

Like, you know, their GMS growth was kind of, you know, mid to low teens, right? And when Josh became CEO, actually, Michael wasn't very positive. The stock went down by, like, you know, 14% on the day he was announced as CEO. Yeah, what it did over the last three years is just, you know, it's just great to watch. Like, you know, every quarter, I think almost every quarter, the GMS has been like either high teens or like almost 20% actually, almost every quarter. Even before the pandemic, it's like 120%, 100, 130%, something like that. But even before that, it's been consistently 20% GMS growth on every quarter. So I just want to highlight, you know, execution matters a lot in any business,

no matter how great business you have, how great marketplace you have, and you still need someone to execute a wealth continuously for a long, long period of time. And I think Josh has been an instrumental, you know, figure to be able to do that over the last three years. And the stock has been a 10-bagger since he began the CEO. So he obviously did a great job. Yeah. And prepping for this podcast, I was reading some transcripts and just he was pulling out like Maslow's hierarchy of needs right off the top of his head and response to some questions. Oh, this is a CEO who's pretty well read and pretty prepared.

And I agree he's done a great job here. All right. Well, hey, Abdullah, this has been fantastic. I'll be sure to link to NBI deep dives and the show notes and everything. You know, I really enjoyed Uber and Etsy. I really enjoyed this conversation. You know, I feel like your discussion of the platform, you should just highlight that. That should be one of your highlights and pitches for deep dive and stuff because I thought that was fantastic.

But, look, this was great. We'll have to have you on in a couple months when NBI deep dives is kind of up and rolling and fully operational and you publish a really interesting new piece. But really appreciate you coming on and we'll chat soon. Yeah. to another invitation and I really, really thank you for inviting me. I really enjoyed this discussion. Perfect. Thanks again, Matt.