ETSY Stock: Etsy looks headed for a mixed year

While the post-COVID market reopening is rejuvenating the business world, it doesn’t bring cheer to companies like Etsy, Inc. (NASDAQ: ETSY) that thrived on the pandemic-induced sales boom. Revenues of the online handicraft retailer are affected by a decline in the demand for products like its popular handmade mask.  

After falling from the 2021 peak, the stock is struggling to regain the lost momentum amid investor concerns over the company’s weak financial performance, marked by continued decline in the number of merchants and customers using the platform. Worries over the slump in gross merchant sales more than offset optimism about the stable sales and earnings performance. Experts, meanwhile, are bullish on the stock’s long-term prospects. So, it makes sense to keep an eye on ETSY, considering the reasonable valuation and the management’s expansion initiatives.

Outlook

The New York-headquartered eCommerce platform, which is focused on handmade products and vintage items, sees continued weakness in gross merchandise sales this year as elevated inflation and financial uncertainties weigh on consumer spending. Though the company managed to offset the dip in gross merchandise sales by raising merchant fees, the strategy might not be sustainable in the long term.

But things should improve when market conditions become favorable and people start including discretionary items in their shopping lists once again. The top line is expected to get a boost once the integration of Reverb, Depop, and Elo7 — the companies that joined the Etsy fold in recent years — is completed. While the process is likely to squeeze margins, the broad merchandise lineup and customization options would attract more shoppers to the platform.

Etsy’s CEO Josh Silverman: “In the last few years, we’ve all faced continued uncertainty, which frankly is feeling like the new normal. But despite the ups and downs, Etsy has thrived. I believe this has everything to do with our agility and resilience, both in our business model and the way we run our company. We stand apart because we offer something different, something we believe is evergreen and enduring. Summing up our core Etsy marketplace plans for 2023, we will work hard to knock down barriers that have historically made Etsy your once in a while, rather than your every day.”

Financials

The bottom line beat estimates in the first three months of fiscal 2023 after falling short of expectations in the previous quarter, which was the first miss in more than four years. Revenues topped expectations consistently in recent quarters. In the first quarter, consolidated revenues moved up 11% year-over-year to about $641 million. Net profit, meanwhile, decreased to $74.5 million or $0.53 per share in Q1 from $86.1 million or $0.60 per share in the prior-year quarter.

Gross merchandise sales, which is the total value of all goods sold on the platform, declined 5% to $3.1 billion, reflecting a modest decline in the number of active sellers and buyers.