Etsy’s Shares Tanked this Week – Here’s Why

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By Published On: August 6, 20210 Comments

Etsy has disappointed investors with its quarterly update, despite reporting better than expected figures.

The online peer-to-peer marketplace reported a 14.2 percent YoY increase in its Gross Merchandise Sales, with a 23.4 percent YoY increase in revenue to $528.9 million.

Wall Street expected to see similar figures of $524.7 million, so these results come as a positive story for the retailer. So why have its shares fallen so dramatically?

The NASDAQ figures show a sharp tumble for the e-commerce platform, as the retailer failed to reproduce similar figures from the previous period. Earlier in 2021, Etsy reported significant climbs in its consolidated and Etsy GMS, up 132.3 percent and 144.1 percent, respectively.

Another difference between the two quarterly results are the increases in its active customer base and seller growth. The previous quarter as an increase of 89.9 percent and 67.1 percent, respectively. In contrast, this quarter reported growth of 50.1 percent and 66.7 percent, correspondingly. While it’s nothing to be sneezed at, the growth has stagnated slightly, which is causing concerns.

Many investors see this as a sign that e-commerce is starting to slump in popularity as more shoppers get vaccinated and return to physical stores.

Despite this dramatic difference between the two quarters, Josh Silverman – Etsy CEO – believes the results are ‘remarkable’ considering the change in the online landscape. “Etsy’s second-quarter 2021 performance is quite remarkable when viewed in context of how dramatically the world changed during the year-ago period,” said Silverman.

“It is deeply gratifying to me and our entire team that we are able to report strong year-over-year growth, with GMS and revenue up approximately 13 percent and 23 percent respectively. In fact, excluding facemasks, which were an important driver of the prior-year period, second quarter GMS for the Etsy marketplace increased 31 percent.

“We’re demonstrating just how many purchase occasions Etsy sellers can meet in truly delightful ways, attracting millions of new buyers and engaging our customers more than ever before. We’re seeing measurable results from deepened investments in our ‘Right to Win’ strategy, which provides a clear roadmap for product and marketing investments to make it easier to shop on Etsy, build top of mind awareness, and solidify buyer trust,” he said.

Earlier in the year, Etsy acquired the online resale marketplace, Depop, which is famously adored by Gen Z consumers. In an effort to attract a younger demographic, Etsy is working to diversify its portfolio while staying within its wheelhouse of an online peer-to-peer marketplace.

“In the second quarter we also announced two strategic acquisitions, both completed in July,” Silverman explained. “Depop and Elo7 further extend our total available market opportunities in resale, a large and fast-growing apparel segment, and in Brazil, Latin America’s largest e-commerce market. In addition to driving growth in our core marketplace, we are now focusing on integrating these exciting businesses into our ‘House of Brands’.”

It might be fair to examine the slowing growth of Etsy as a reason for concern. However, the platform is reporting ongoing growth, albeit stable and less extraordinary than earlier, but it’s growth nonetheless. It will be interesting to see how investors react in the coming months.

“Underlying growth and buyer cohort trends in our core Etsy marketplace remain encouraging as the world reopens and consumer spending patterns shift,” explained Rachel Glaser, the CFO at Etsy. “For example, despite a decline in new buyer growth, which we anticipated as we emerge from the pandemic, in the second quarter we still added eight million new buyers to the Etsy marketplace – nearly double the number of new buyers acquired in the second quarter of 2019.

“Furthermore, GMS per active buyer on a trailing twelve-month basis was up 22 percent as compared to the second quarter of 2020, another record high for this important metric. We’re also leveraging our strong financial position to invest in people, product, marketing, and infrastructure to support future growth. We believe our capital-light business model will enable us to make these investments while continuing to deliver healthy levels of adjusted EBITDA.”

Silverman further commented on the marketplace’s ‘relevance’ in the landscape, and how it has maintained ongoing growth despite global changes in consumer behaviour.

“Through all of the changes the world has experienced during the last year, Etsy has demonstrated the relevance of our marketplaces, the dynamism of our business model and the ambition and determination of our team. Our guidance for the third quarter for the core Etsy marketplace anticipates mid-single-digit GMS growth and mid-teens growth in GMS excluding facemasks,” he said.

“These growth levels continue to represent strength in the business and our ability to attract and engage buyers as we compare to the above e-commerce sector growth Etsy reported last year. And, we couldn’t be more excited to now operate four highly differentiated, non-commoditized, and loved e-commerce brands, which we believe all share similar levers of growth to unlock value.

“While Reverb, Depop, and Elo7 all represent small pieces of our overall company today, we anticipate they will expand our TAM, provide new avenues for growth, and further deepen Etsy Inc.’s differentiation compared to the many commoditized places there are to shop. We’re keeping our eye on the prize – investing for the long term in our tremendous market opportunity while delivering top-line growth and driving strong levels of profitability,” he said.

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