Shares of the handmade goods e-commerce platform Etsy (NASDAQ: ETSY) experienced a significant setback in 2023, plunging 32.3% as reported by S&P Global Market Intelligence. Despite the broader market’s commendable 24% surge, Etsy’s dismal performance left shareholders more than disheartened.
The decline in Etsy’s stock did not follow the typical trajectory observed on a full-year chart, with sharp fluctuations highlighting key events. Instead, the downward trend was ominously consistent, persisting from February through November.
I believe the sentiment shared by Etsy CEO Josh Silverman in December encapsulates the predicament. Silverman expressed his dismay, stating, “We are operating in a very challenging macro and competitive environment, and [gross merchandise sales have] remained essentially flat since 2021.” Evidently, the platform’s growth has stagnated for approximately two years.
This stark reality has undoubtedly contributed to a gradual wane in investor confidence throughout 2023.
The Plateauing Growth Dilemma
During the first three quarters of 2023, Etsy reported gross merchandise sales (GMS) of nearly $9.2 billion. Comparatively, the same period in 2021 witnessed GMS of almost $9.3 billion, validating Silverman’s assertion of a growth plateau.
Despite this, Etsy’s revenue continued to ascend even in the face of stagnant platform sales as depicted in the chart below.
The revenue generated on the platform does not accrue directly to Etsy but rather to its 8.8 million active sellers. As compensation, Etsy levies charges for various obligatory and discretionary services provided to its sellers.
Although Etsy’s revenue has surged, the slight decline in platform GMS suggests that sellers are earning marginally less. This unsettling trend raises concerns about long-term sustainability, a concern reiterated in Silverman’s poignant December letter, where the company outlined a reduction of its workforce by 11% to refocus on activities that spur sales growth for its seller community.
A Glimmer of Hope for the Future
Silverman remains optimistic, asserting, “I firmly believe that it is still very early innings for Etsy.” The company’s pursuit of growth revolves around the implementation of generative artificial intelligence (AI) to enhance search results and identify listings likely to facilitate conversions due to their quality.
Presently, Etsy’s stock presents an attractive investment prospect, and there are grounds to believe that genuine sales growth could be rekindled. However, the market’s apprehension about the stagnant adoption rate is entirely justified. Therefore, the upcoming year is poised to be a defining chapter for Etsy’s business and its shareholders.
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Jon Quast has positions in Etsy. The Motley Fool has positions in and recommends Etsy. The Motley Fool has a disclosure policy.