Allow me to tell you what the most popular color of 2025 will be: I have it on good authority that Lime Cream will be the color of the year this year.
Now you know. You're welcome.
My "good authority" on colors is none other than online marketplace Etsy(NASDAQ: ETSY). The company provides a platform for handcrafted goods that connects sellers with buyers and is one of the largest e-commerce players in the world. But how did it become a color expert, too?
Etsy is simply monitoring the trends on its own platform. In 2024, its users were searching for Lime Green. But the company has seen these searches start to taper off, giving Lime Cream an opportunity to become the new top color choice.
This is no different than what image-browsing platform Pinterest(NYSE: PINS) does. The company takes great pride in its annual report called Pinterest Predicts. Every year, the company analyzes small trends with rising search volume to predict consumer interest in the coming year, and management claims that past reports have been 80% accurate. So there's an 8 in 10 chance that cherry (the color and the flavor) will have a big moment in 2025, according to this year's report.
Investors might not think that there's any value in knowing about Lime Cream and cherries. But these two things demonstrate how both Etsy and Pinterest can succeed in the coming years.
It's all about the valuable data
Pinterest has 553 million monthly active users as of the fourth quarter of 2024, while Etsy has 96.7 million active buyers as of the third quarter of 2024. As these users come to these platforms and poke around, these two companies can use this engagement data to do some pretty cool things, such as predict trends.
Pinterest can package this data for advertisers, which is important, considering the company makes its money from advertising. Businesses that know which trends will be hot -- such as the cherry trend -- can better launch and market products on the platform, which can boost advertising conversion rates.
Done well, this can be a win-win-win. Consumers win because they find the trending products they're looking for. Advertisers win because people buy their products, and Pinterest wins because advertisers increase spending as they find success.
The same could be said for Etsy. By knowing what the platform's active buyers are looking for, sellers can better cater to consumer preferences. Sellers potentially get a boost in sales, and buyers find relevant Lime Cream products. And Etsy keeps making high-margin revenue, thanks to taking a cut of the sales transactions.
This gives both Pinterest and Etsy a type of competitive advantage. Thanks to the scale of these two platforms, these two companies have access to consumer data that many competitors don't. They still have to analyze trends correctly and package the information in a way that's actually useful for their customers. But it's an under-appreciated component of each platform, nonetheless.
The data these platforms possess has presented a new opportunity lately: artificial intelligence (AI). Both Pinterest and Etsy have enhanced their search algorithms with AI in recent quarters. The idea is to train the AI on its data in order to make better recommendations, which will hopefully boost engagement.
For Etsy, investors will have to keep looking for signs that AI is helping engage its buyers. But for Pinterest, there's already reason to believe that AI recommendations could be helping engagement. According to management, 62% of its monthly active users are now also weekly active users, which is the highest percentage it's ever had. It's possible that something else is driving this, but it could mean that Pinterest users are finding more value in the experience due to AI and are consequently coming back more frequently.
I'm not saying that Pinterest stock and Etsy stock are guaranteed winners because of their data -- there's more that goes into building an investment thesis than that. I'm saying that they posses data that can help them compete well and grow long term if they use the data effectively. It's part of the reason it can be important to invest in a platform with scale.
For what it's worth, it's part of the reason I believe both Pinterest and Etsy are good stocks to buy and hold over the long term.
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Jon Quast has positions in Etsy and Pinterest. The Motley Fool has positions in and recommends Etsy and Pinterest. The Motley Fool has a disclosure policy.
