What happened
Shares of Etsy (ETSY 0.25%) jumped following news on June 28 that it was acquiring "the Etsy of Brazil," officially known as Elo7, for $217 million in cash.
Elo7 is a privately held marketplace that sells unique, handmade items, which makes it a good fit with Etsy. As of 1:19 p.m. EDT on Thursday, the stock was up 9.61% week to date, according to data provided by S&P Global Market Intelligence.
Image source: Getty Images.
So what
Elo7 is considered a leader in custom and made-to-order merchandise in Brazil. It has approximately 1.9 million active buyers and 56,000 active sellers. That reach makes it a top 10 e-commerce site in Brazil and positions Etsy for growth in one of the fastest-growing e-commerce markets in the world. In 2020, Brazil ranked fourth in retail e-commerce sales worldwide, behind Argentina, Singapore, and Spain, according to eMarketer.
Now what
Elo7's user base is a small fraction of Etsy's 90 million active buyers and 4.7 million sellers, so it's not expected to move the needle for Etsy's business in the near term. However, the acquisition comes on top of the success from integrating music-resale marketplace Reverb, which Etsy acquired in 2019, and the recent Depop deal for $1.625 billion. Investors are starting to see a pattern of management allocating capital in attractive ways to expand Etsy's offering and add talent to the ranks.
Before the recent deal announcements, Etsy shares had been trading down year to date, but growth stocks have started to rebound in recent weeks after a poor showing to start the year. With Etsy trading at a relatively appealing price-to-free cash flow multiple of 35, this e-commerce stock still looks like a good long-term investment.
