Etsy, Inc. (ETSY) has inked a cash deal to acquire Depop, a privately-held marketplace for unique fashion with 30 million registered users across 150 countries, for $1.625 billion.
ETSY operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world. Shares of the company were up 7.2% to close at $175.14 on June 2.
Per the terms of the deal, ETSY will pay $1.625 billion in cash after adjusting for Depop’s working capital, transaction expenses, cash, debt, and certain deferred and unvested equity of Depop’s management and employees. Notably, Depop will continue to operate as a standalone marketplace headed by its existing team.
The deal is expected to be accretive to Etsy’s top-line growth and will be slightly dilutive to Etsy’s adjusted EBITDA margin. (See Etsy, Inc. stock analysis on TipRanks)
The addition of Depop will enhance ETSY’s total addressable market (TAM) in the apparel sector, specifically in the fast-growing resale space, as well as widen its reach into the Gen Z consumer with differentiated brand strength and strong user engagement, the company said.
The acquisition is expected to close during the third quarter of 2021. Upon completion of the deal, Etsy will function through three highly differentiated eCommerce brands: Etsy, Reverb, and Depop.
ETSY intends to utilize its available liquidity to finance the deal. As of March 31, 2021, Etsy had $2 billion in total liquidity which includes $1.8 billion in cash and investments and an undrawn $200 million revolving credit facility.
ETSY CEO Josh Silverman stated, “We are simply thrilled to be adding Depop—what we believe to be the resale home for Gen Z consumers—to the Etsy family. Depop is a vibrant, two-sided marketplace with a passionate community, a highly-differentiated offering of unique items, and we believe significant potential to further scale.”
Silverman further added, “We see significant opportunities for shared expertise and growth synergies across what will now be a tremendous ‘house of brands’ portfolio of individually distinct, and very special, ecommerce brands.”
After the deal announcement, Canaccord Genuity analyst Maria Ripps reiterated a Buy rating and a price target of $270 (54.2% upside potential) on the stock.
Ripps commented that the deal enhances ETSY’s existing portfolio of brands adding Depop’s strong base of Gen Z end consumers to its user base. It also extends the company’s foothold in the rapidly growing second-hand apparel market.
Overall, the stock has a Strong Buy consensus rating based on 11 Buys, 1 Hold, and 1 Sell. The average analyst price target of $224.83 implies 28.4% upside potential from current levels. Shares of ETSY have jumped 117% over the past year.
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