At the beginning of June, Etsy (NASDAQ:ETSY) announced it was acquiring Depop, an online fashion reseller for $1.6 billion. Investors may be wondering what to make of this move and how this new brand fits in to the overall strategy of this marketplace for artisans to sell their goods. On a Fool Live episode recorded on July 14, Fool contributors Brian Feroldi and Brian Withers discuss the details of the purchase and why shareholders should love this move.

Brian Withers: Moving on to Etsy, E-T-S-Y, another company that spelled just like the stock. In June, Etsy announced it’s acquiring Depop, D-E-P-O-P. If you’ve not heard of this, this is a platform for reselling clothing and other fashion accessories. It expands Etsy’s now what they’re calling a house of brands. They have the original Etsy, Reverb, which is for instruments and music lovers, and then Depop is the fashion piece. Apparel actually has the largest addressable market of all of Etsy’s categories and get this, $364 billion growing at 9% annually. Pretty impressive size of the market they’re looking at, and probably part of the reason why they went to acquire Depop.

The second-hand retail market, really that’s what Depop is focused on, reselling is expected to grow to $64 billion in the U.S. That’s not chump change. By 2024 at a rate of 39% compound annual growth rate since 2019. The other piece that’s pretty exciting about Depop is 90% of its customers are Gen Z, giving Etsy significant exposure to this age group. Something that I think can benefit the brand overall.

Depop has been highly successful growing its gross merchandise sales, it more than doubled in 2020, and it added 9 million users to bring it to 28 million active users monthly, not necessarily buyers. There’s an engagement platform that they can engage in. This is in the U.S., U.K., and Australia, and they saw 4 million buyers in 2020 and 2 million sellers.

Etsy has proven it can do M&A successfully, Reverb has seen its gross margins go from 33% to 53%, pretty impressive. Their gross merchandise sales per marketing dollar grew from $20 to $27. Both of these improvements were over the course of 18 months. So Etsy gets in and goes to work right away. I like this move. It gives Etsy another special brand to scale and bring under the fold.

Brian Feroldi: I as a shareholder also like this acquisition and I really like it because of what they’ve done with Reverb. To me, they’ve really proven that the acquisition that they made there has paid off, and I also like the size of the deal. It’s a $1.6 billion deal versus Etsy has like a $25 billion company. Relatively speaking, it’s a small bet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.