Consumer Stocks Spotlight: Etsy, Roblox, and Reddit

Summary

Podcast Summary: Motley Fool Money Episode: Consumer Stocks Spotlight: Etsy, Roblox, and Reddit
Release Date: August 4, 2025
Host: Tim Byers
Guests: Alicia Alfieri, Tom King
Description: A deep dive into the performance and future prospects of prominent consumer-focused stocks—Etsy, Roblox, and Reddit—with insights from The Motley Fool's investment analysts.

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1. Introduction

The episode begins with host Tim Byers welcoming his co-hosts, Alicia Alfieri and Tom King, to discuss the latest developments in the e-commerce sector amidst a backdrop of strong U.S. economic indicators. Tim sets the stage by referencing Federal Reserve Chairman Jerome Powell's decision to maintain interest rates due to mild inflation concerns, juxtaposed against a robust GDP growth of 3% in the U.S. He poses a central question: "Shouldn't the strong economic activity boost companies driven by consumer spending?" [01:06]

2. Etsy's Mixed Earnings Performance

Key Points:

• Revenue Growth vs. Earnings Per Share (EPS): Etsy reported a 4% increase in revenue year-over-year (YoY), while EPS declined by 39%, and Gross Merchandise Sales (GMS) dipped by 5%.
• Revenue Drivers: Tom King explains that Etsy's revenue growth was primarily due to a 15% increase in advertising revenue, despite flat commission income and GMS [02:11].
• Sustainability Concerns: The analysts discuss whether Etsy’s reliance on higher take rates is sustainable, concluding that the declining sales from sellers paired with rising commission rates pose sustainability challenges [03:07].

Notable Quote:

“GMS is flat. It's pretty much been declining and flat since about 2022 onwards. Over that time, Etsy has been steadily increasing its commission rate while sales have been going down for sellers. So it is not a sustainable situation.” — Tom King [03:07]

Conclusion: While Etsy shows revenue growth through increased advertising spend, the lack of corresponding growth in GMS and declining EPS raise concerns about the long-term sustainability of its business model.

3. Roblox: Strong Engagement vs. Revenue Shortfalls

Key Points:

• Earnings Overview: Roblox's revenue growth and adjusted EPS fell short of expectations, but underlying metrics tell a different story.
• Engagement Metrics: Bookings surged by over 50%, monthly paying users increased by 42%, and hours of engagement rose by 58% [04:55].
• Sustainable Growth: Alicia Alfieri emphasizes that despite some viral hits, the overall engagement and user metrics indicate continued growth. She warns against over-reliance on transient viral experiences, noting robust engagement even when excluding top-performing games [06:16].

Notable Quotes:

“We need metrics like engagement, number of users, hours spent on the platform, and bookings. These speak to the value and health of Roblox’s network.” — Alicia Alfieri [04:55]

“Over half of the growth in spending came from games that weren’t in the top 10, indicating broader platform strength.” — Alicia Alfieri [06:16]

Conclusion: Roblox demonstrates strong platform engagement and user growth, suggesting a resilient and expanding ecosystem despite some challenges in top-line revenue and profitability metrics.

4. Reddit: Potential Rule Breaker or Cautious Contender?

Key Points:

• Earnings Highlights: Reddit reported a 78% YoY revenue growth and achieved its biggest earnings beat ever. Daily active users reached 110.4 million, up by 21% [08:00].
• Free Cash Flow Generation: Reddit generated $3.7 million in free cash flow, even after accounting for stock-based compensation, indicating strong scaling [08:00].
• Data Monetization Concerns: Alicia raises a critical question about Reddit's strategy to monetize its vast repository of human experience data. She worries that selling access to this data to Large Language Models (LLMs) could erode Reddit's competitive advantage [09:06].

Notable Quotes:

“Reddit is a cash generator on a simple FCF basis. It has produced $3.7 million in free cash flow, which is impressive.” — Tim Byers [08:00]

“Will selling access to its human experience data give its competitive advantage away to LLMs?” — Alicia Alfieri [09:06]

Analyst Perspectives:

• Tom King: Expresses caution regarding Reddit's heavy reliance on advertising revenue. He questions the sustainability of web traffic in an era dominated by LLMs and highlights Reddit’s high valuation of 20x revenue as a potential risk [11:18].
• Tim Byers: Suggests that Reddit's data is valuable and not easily undervalued, implying that access to Reddit’s API would be costly for LLMs, potentially protecting Reddit’s data assets [10:47].

Notable Quotes:

“It makes almost all of its money from advertising. If Reddit is not getting as much traffic to its website as it did historically, that is going to hurt Reddit badly.” — Tom King [11:21]

“It's not as cut and dried as it might be. I'm not sure it has all six traits.” — Tim Byers [12:00]

Conclusion: While Reddit shows impressive revenue growth and user engagement, concerns about its dependency on advertising and the potential impact of AI-driven data usage present uncertainties about its status as a rule-breaking investment opportunity.

5. Business History Segment: The Evolution of Supermarkets

Key Points:

• Historical Insight: The segment highlights the opening of America's first self-service supermarket, King Cullen, in Queens, New York, on August 4, 1930. This innovation transformed grocery shopping from a personalized service to a self-service model [14:32].
• Modern Parallels: Alicia draws parallels between early supermarkets and contemporary services like Instacart, suggesting that the industry is ripe for another paradigm shift [15:25].
• Industry Challenges: Tom King discusses the grocery industry's high competition, thin margins, and the difficulty of disrupting established giants like Walmart and Costco. He mentions Amazon Fresh as an example of a previous attempt that didn't achieve lasting success [16:58].

Notable Quotes:

“Instacart is sort of like the old self-service grocery model making a comeback with modern twists.” — Tim Byers [15:32]

“It's a $1 trillion market, and disrupting it requires overcoming significant challenges related to margins and established competitors.” — Tom King [18:08]

Conclusion: The grocery industry, though longstanding and highly competitive, remains open to innovation and disruption, especially with the infusion of technology-driven solutions.

6. Predictions and Outlook

Discussion: The panel discusses the future performance of major grocery retailers, specifically Walmart and Kroger, over the next decade. Tim predicts Walmart will outperform with at least a 10% annualized return, while Kroger may struggle to exceed 7%. Alicia concurs, emphasizing Walmart's potential to disrupt itself and maintain its leading position. Tom echoes this sentiment, agreeing with the consensus favoring Walmart [19:28 – 20:16].

Notable Quotes:

“I would also say that as Tom was talking, I was thinking about this idea of disruptors in this space and I thought there are some cases in which a player that has been in the market for a while can disrupt the market and disrupt itself. And I think if any company has the likelihood of doing it, it would be Walmart.” — Alicia Alfieri [19:32]

Conclusion: The consensus among the analysts is optimistic about Walmart's long-term performance and its capability to innovate within the grocery sector, while Kroger is viewed as having more modest growth prospects.

7. Closing Remarks

Tim wraps up the episode by reminding listeners to consider formal recommendations and to make investment decisions based on comprehensive analysis rather than solely on podcast discussions. He thanks his guests Alicia Alfieri and Tom King, and signs off [20:16].

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Key Takeaways:

• Etsy: Faces sustainability issues due to declining sales and increasing commission rates despite revenue growth from advertising.
• Roblox: Demonstrates strong user engagement and growth metrics, indicating a healthy and expanding platform.
• Reddit: Shows impressive revenue and user growth but faces challenges related to data monetization and high valuation.
• Grocery Industry: Continues to be a challenging sector with opportunities for innovation but dominated by established players like Walmart and Costco.
• Investment Outlook: Walmart is favored for long-term growth potential over Kroger in the grocery sector.

Notable Quotes:

• “When a jean fits that well, I'm wearing it on repeat.” — Christian McCaffrey [00:00] (Note: Initial advertisement segment)
• “GMS is flat. … So it is not a sustainable situation.” — Tom King [03:07]
• “What LLMs want to pay and it's not going to be cheap.” — Tim Byers [10:47]
• “It's a $1 trillion market, it's a $1 trillion market.” — Tom King [18:08]

Disclaimer: The Motley Fool may have formal recommendations regarding the stocks discussed. Investors are advised to conduct their own research and consult financial advisors before making investment decisions.

Transcript

[Tim Byers]

Hey, guys, it's Christian McCaffrey, pro running back. I'm partnering with Abercrombie this season to tell you about their viral denim. All you need to know is denim should fit like this. Abercrombie's athletic fit is a game changer. They're designed for guys with an athlete's build like mine. Just enough room and the perfect stretch. When a jean fits that well, I'm wearing it on repeat. Shop Abercrombie denim in the app, online and in store. What do E Commerce earnings say about the economy? You're listening to Motley Fool Money. All right. Good morning, fools. I'm your host Tim Byers. With me, two of my rule breakers teammates, Alicia Alfieri and Tom King. Lisha. Tom, how you feeling? Are you suitably caffeinated?

[Tom King]

Very good, thank you. Good to be here.

[Alicia Alfieri]

Mostly caffeinated.

[Tim Byers]

Mostly caffeinated. Okay, well, you have a young baby, so you need more caffeine than most. We're going to hit an E Commerce earnings spotlight today. Last week, Fed Chairman Jerome Powell decided to hold back on lowering interest rates, citing mildly concerning inflation Data. And yet US economic activity appears to be good with GDP upper reported 3%. So shouldn't that be a boon for companies driven by consumer spending? We're going to tackle two, and to me it looks like a mixed bag. I'm going to start us off with Etsy. Tom, I'm going to come to you in a second here, but I show etsy reporting a 4% increase in revenue year over year. EPS though earnings per share fell 39% and gross merchandise sales dropped 5%. You know, that doesn't sound that great. Seems to be that Etsy's ability to raise prices on sellers via higher take rates is really the only thing that's fueling growth here. So am I reading that wrong? Is that true? And if I am reading it right, is that sustainable? So where are you on Etsy?

[Tom King]

Yeah. So there are two drivers of Etsy's revenue in the second quarter of 2025. That was pretty much a flat revenue from it, from the Commission it takes on each sale on the platform, but about a 15% increase in advertising revenue and gross merchandise sales. The value of things sold on the platform was around about flat. So basically what the data is saying to me is sellers on Etsy spent a lot more money on advertising, but it didn't which drove revenue for Etsy, but it didn't drive an increase in sales on the platform.

[Tim Byers]

That feels like sellers have to benefit here. This has to be a mutually beneficial network. So then is it fair to say, if I've heard you correctly, at the moment, it's not as mutually beneficial as it should be in an ideal situation?

[Tom King]

No, that's a very accurate statement. GMS is flat. It's pretty much been. It declined pretty, it had a boom, it boomed in 2020 and 2021, as did many businesses, and it's been pretty much flat, declining and flat since about 2022 onwards. Over that time frame, Etsy has been steadily increasing its commission rate, its take rate, what it charges for each sale at the same time that sales have been going down for sellers. So it is not a sustainable situation. And I'm not sure how it, how it ends, but right now it can't carry on the way it's going.

[Tim Byers]

All right, well, watch this with caution, fools, because it's, it's a, it's not a doom loop, but it may be cresting into, you know, a roller coaster ride that we don't like all that much. But let's talk about one that is not, you know, maybe, maybe a little bit more interesting, maybe a more fun roller coaster ride. Alicia. I don't know, but Roblox earnings, once again, seeing that the business design means that, you know, realized revenue and profits doesn't reflect the actual strength of the platform. I mean, that's certainly what it looks like. And there were some strong numbers underlying the initial, what looked like weakness on the top line. Just quickly on this, revenue growth and adjusted earnings per share came up short of expectations. But these numbers were really jarring to me, Alicia. Bookings jumped by more than 50%. So this is business that's done in Roblox. Monthly paying users up 42%. Hours of engagement improved 58%. So is Roblox's popularity peaking streaking? Where is it here?

[Alicia Alfieri]

Well, I think Roblox's popularity is continuing to grow. So as you said, revenues and profits don't tell the whole story. We need things like engagement metrics, the numbers you touched on, number of users, hours spent on the platform, and bookings. Data that really speaks to the value of the network and the health of the platform. So the latest quarter showed Roblox growing its relevance across the world. So bookings, hours spent daily, average users, all of these metrics were up across all world regions. But we do have to be careful here. So there were five very popular viral experiences that, that Roblox has, that has over 10 million daily active users. And four of those are pretty new. They've launched just within the last 12 months. But Roblox is more than those games. So excluding those top experiences, hours of engagement still grew 47% year over year. And over half of the growth in spending in Roblox experiences came from the games or experiences that weren't in that top 10. So again, that growth should continue. But we have to be careful not to expect the growth from those viral hits to continue, since interest tends to wane over time with things that are viral.

[Tim Byers]

Well, I mean, don't tell the acquirers that, because one of those top games, what is it, you know, a kid that made a Roblox game in like three months and then sold it for something like 3 million to, you know, to. I, I don't remember if it was private equity or just, you know, a VC for what, whatever it was, but it was quite a deal here. So it does look like the top of the funnel is generating pretty massive interest.

[Alicia Alfieri]

Yeah, and I'm glad that you brought that up. You know, viral games can really help to attract new users and also important new developers to the platform. And if those users are sticky, if those developers create games that resonate, it'll help to continue to grow Roblox's relevance and its network value over time.

[Tim Byers]

We would like to think so. All right, up next, is Reddit a rule breaker in the making? We're going to debate it. You're listening to Motley Fool Money. Now that we're back here, let's talk about consumers who don an alter ego and take on social news and discussion platform Reddit, which recently reported earnings. So we're going to talk about whether or not this is a rule breaker in the making, and we're each going to give a take on this. But before we do, let me tee this up with some data. Revenue grew 78% year over year. In the most recent quarter. The company reported its biggest ever earnings beat. As a public company, Reddit Answers, which is, you know, something that they provide as a way to, you know, draw from the expertise of the community to answer significant questions. That was up 6x in weekly users and daily active users reached 110.4 million. That was up 21%. So I'll, I'll start us here. There is some amount of evidence that Reddit is scaling and getting more out of the network as it grows. I found this fascinating. Reddit is a cash generator on a simple FCF basis. Free cash flow, that means. And it's produced 3.7 million in free cash flow, even if after you subtract out all the stock based compensation. Now there isn't enough cash there on an organic basis to cover their acquisitions. And Reddit does make acquisitions. But still, this is impressive. I mean, they are scaling, they look like they are scaling inevitably towards consistent free cash generation. But Alicia, tell me, I mean, am I wrong? Is this a rule breaker in the making?

[Alicia Alfieri]

I don't think that you're wrong, but I do have a question.

[Tim Byers]

But you think I might be misguided?

[Alicia Alfieri]

No, I would never say that, Tim. I do have a question I've been noodling on and perhaps we could all noodle on it together. So I am a big fan of Reddit, especially as a new parent there. There is a wealth of human experience that you could find there, and there are different channels. Mom, it, dad it, all kinds of subreddits. And I do think that in order to grow over the next five years, Reddit needs to hold on to this key competitive advantage of its trove of human experience data. Now, in their earnings call, Reddit talked about how AI can answer many questions, but some questions require a human answer and a range of human answers. But it also talked about human experience data being incredibly useful to another of the users of its platform, which are LLMs. So I wonder, will selling access to its human experience data essentially give its competitive advantage away to LLMs? And if not, can AI and LLMs become a weak point in Reddit's network if their. Net contribution is negative for Reddit? Right, since they're benefiting from the human experience data, seeking to kind of replace Reddit in some ways by getting that data and using it in their own learning. And if they ever post anything to Reddit, it would likely diminish the value of the human experience data that is so important for Reddit.

[Tim Byers]

I mean, maybe, but as somebody who's worked on some code that is trying to hit the Reddit API, can I just tell you how expensive it is to get the Reddit data through the API? So I would say Reddit is not undervaluing that Data. And if LLMs want to play and people who are using those LLMs want to play, they're going to pay and it's not going to be cheap. So, I mean, it's an interesting question, though. But Tom, where do you land on this?

[Tom King]

I would be very, very wary of Reddit.

[Tim Byers]

Okay, say more.

[Tom King]

It makes almost all of its money from advertising. So that means that when people go onto Reddit.com, they see a banner ad on the side or a highlighted link, a sponsored link or something. That's where Reddit makes all its money. There is a very big question right now about how much people are going to be visiting individual websites when they can get their answers from an LLM. So that is a big unknown for me right now. If Reddit is not getting as much traffic to its website as it did historically, that is going to hurt Reddit badly. And add to this fact that it is trading at 20 times revenue and these are the kind of multiples we haven't seen since 2020, 2021. And that did not end well. So I would be very cautious of Reddit.

[Tim Byers]

Yeah, I mean, I'm glad you brought up the valuation. The valuation is arguably extreme and the hurdles that it has to get past, I mean, in order for Reddit to really blossom and deliver returns for investors, if you're a rule breaker investor and you're really looking at this one, you have to be looking out 10 years and seeing an extraordinary expansion of that free cash flow margin. And you have to hold steady not only in that advertising business, but you're probably going to have to come up with new ways to generate revenue. So that API that's feeding the LLMs, that's going to have to be profitable and persistently so. And you may even need a third revenue stream that we can't even see yet. So, yeah, this is speculative. I think we can agree. So is it a rule breaker? I think we, the consensus here is like, yeah, maybe, maybe we'll, we'll take a look at it. But I don't think it's, I don't think it's as cut and dried as, as it might be. I'm not sure it has all six traits. All right, fools. Up next, a little bit of business history, a new segment. Please stay tuned. You're listening to Motley Fool Money. All right, in the spirit of education on these podcasts and something we used to do on a show you may have seen on Fool Live called this Week in Tech, we are bringing you now this Week in Business History. So for each of you, I know you've seen the notes, so you don't have to ask, act surprised here, but I wonder if you are surprised by when this was. So today is August 4th. If we go back to August 4th, 1930, that is the opening of the first King Cullen supermarket in Queens, New York. Quick side note, I remember as a kid before we left New York, I remember going like with my mom on shopping trips to the King Cullen supermarket. So I know this name. I remember it from the early 1970s. Here's my question for each of you and I'll kick it off to you first, Tom, are you surprised that supermarkets have been around now going on 100 years?

[Tom King]

If you'd asked me, I would have thought it began later. So, yes, I am surprised it began as early as 1930.

[Tim Byers]

Alicia, what do you think?

[Alicia Alfieri]

I'm not terribly surprised, but I do wonder how they were different, how their footprint was different than they are today. I'm sure they were much smaller and carried much less variety of goods.

[Tim Byers]

Well, so it's interesting you mentioned this because the Smithsonian Institution says it's America's first supermarket and it was revolutionary at the time. So it introduced the concept of a self service grocery store. Up till this point, you would go to a grocer and the grocer would take your list of what you want and then go get everything out of the back room, out of the stock room and bring it to you. Yeah, Alicia, go ahead.

[Alicia Alfieri]

I feel like that should come back. I love the convenience of that. Isn't that almost like Instacart?

[Tim Byers]

It is, that's right. Like this is the thing. So the rule breaker's lesson here is that it is very often that an existing industry that used to have rules that were broken end up getting rules broken again. And sometimes we go back to a variation of the old rules. So this is, this is exactly right. Instacart is sort of like this. Interestingly also, this idea of small format, lots of things pre designed, very designed really to break the, really the price barrier. And this is what's interesting. Very low prices was what King Colin was known for. This sounds like another recent rule breaker, Tom, which I would say is BBB Foods. Not necessarily a big warehouse, reasonable form factor, really small, designed at, for really low prices. And you get in and you get your stuff fast and you get it and you get out. So this is kind of interesting to me. So here's my question for you, Tom, and then I'll kick it back to you. Alicia. This does seem ripe for yet another paradigm shift. Have I made you more interested, less interested, or you are as interested as you always were about looking at rule breakers in this industry?

[Tom King]

I mean, it certainly is a very big industry. Close to a trillion dollars in sales in 2024. It is an industry that hasn't changed very much for quite a long time. You know, as you said, the first supermarket introduced in 1930. Now that is how we mostly get our groceries from. Walmart is, for example, one of the biggest grocers in The United States. I suppose somebody could figure out a way to do it better. But it is, it is a difficult industry to enter because, I mean, the margins are very thin. They're very big, well prepared competitors. Costco, Walmart, I'm thinking of in particular. It's a hard thing to shop for groceries. Sometimes the thing you want is not there. You like your bananas, a certain ripeness. Other people think there should be a different ripeness. All those sort of factors make it pretty hard to get this right and disrupt. But I'm certainly interested to hear ideas from people that try to do it differently. I think Amazon Fresh was quite an interesting idea in the whole grocery space and that I don't think has been particularly successful.

[Tim Byers]

No, it wasn't that good an idea.

[Tom King]

And why do you say that, Tim?

[Tim Byers]

Because I think they tried to automate far too much of it and stripped all of the humanity out of it. And I think that that just didn't work. But let's end on this. It's a $1 trillion as of 2024, it's a $1 trillion market. And we're going to get a better read on how this is doing when Walmart reports earnings on August 15th. So stay tuned for that. Kroger will report in September. So will there be disruption here? We're going to have to look at the numbers in the coming month. Let's end with a prediction because we have Walmart earnings coming up on August 15th. Then we have Kroger earnings coming next month in September. So here's my question. Quick one, yes or no. Which one? Or actually, which is the bigger outperformer, Walmart or Kroger over the next 10 years? Give me a, give me a rough estimate of what you think and I'll start us off here. I would, I won't just leave you on the hook. I'll go with you first. After I give my prediction here, I'm going to say Walmart and I'm going to say at least 10% annualized over the next 10 years. I don't, I think Kroger is going to struggle to get over 7%. Leisha, what do you think?

[Alicia Alfieri]

I mean, Tim, you came in and stole my answer right out of my head.

[Tim Byers]

Well, you didn't copy my answer. There's no rules here.

[Alicia Alfieri]

I would copy your answer, but I would also say that as Tom was talking, I was thinking about this idea of disruptors in this space and I thought there are some cases in which a player that has been in the market for a while can disrupt the market and disrupt itself. And I think if any company has the likelihood of doing it, it would be Walmart. So I agree.

[Tim Byers]

Walmart disrupting itself. O I like it. Tom.

[Tom King]

I always try to take a different, different answer to what my co hosts have given, but honestly, that's exactly what I was going to say. Tim. Walmart and around about 10% consensus. Yeah. So that's my answer.

[Tim Byers]

I like it. Consensus. We got it. We're going to leave it there, fools. As always, people on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Fools. Thank you for tuning in to Motley Fool Money for my guests, Alicia Alfieri, Tom King. For our engineer, Dan Boyd. I'm Tim Byers. Thanks for tuning in. Full on, everyone.