Are Etsy’s shares a buy?

e-commerce has historically been dominated by large, “horizontal” companies. These companies operate across different retail categories (“horizontal”) rather than focusing on one particular category (“vertical”). The tendency for online retailing to gravitate towards a few large companies makes economic sense. It’s a business with high fixed costs and relatively low variable costs. Economies of scale are therefore critical for profitability.

The importance of scale in e-commerce resulted in are not exhaustive, but it gives a sense of the scale of the large players in each region. Online retail penetration is much smaller in emerging markets like Latin America and Southeast Asia. The leading companies in those regions are thus much smaller than their US and Chinese counterparts.