Etsy (ETSY, Financial) is experiencing a significant downturn, reaching levels last seen in April 2020, after indicating a potential decline in Q2 gross merchandise sales (GMS). This projection contradicts their previous forecast which suggested Q1 would be the lowest point in GMS for the year. Despite initial optimism, economic difficulties are proving more persistent than anticipated.
In Q1, Etsy's consolidated GMS decreased by 3.7% year-over-year to $3.0 billion, aligning with their expectations of a low-single-digit drop. Revenue slightly increased by 0.8% year-over-year to $646 million, meeting analyst projections. However, the company now expects the downturn to continue into Q2, with GMS potentially falling further, forecasting a decline from mid-single-digit to low single-digit. For the full year, Etsy is cautiously optimistic about a mild acceleration in year-over-year GMS growth in the second half of 2024.
The downturn is partly due to reduced spending per buyer on Etsy's platform, which decreased by 3.5% in Q1. This reflects ongoing low consumer confidence and limited discretionary income. Unlike competitors such as eBay (EBAY, Financial), Amazon (AMZN, Financial), Walmart (WMT, Financial), and Target (TGT, Financial), which offer a broader range of essential goods, Etsy primarily features non-essential items, making it more vulnerable in tight economic conditions.
Despite these challenges, there are positives. The number of active buyers on Etsy remained steady at 91.6 million. The company has also been promoting itself as a prime destination for gifts, evidenced by a launch of Gift Mode and a modest increase in gift-related GMS. Additionally, Etsy has been proactive in enhancing site quality by removing non-compliant handmade sellers, despite a minor negative impact on GMS.
Last year, Etsy enjoyed a near 40% increase in stock price from November to mid-December due to expectations of falling interest rates. However, with ongoing high inflation, stable interest rates, and weakening consumer sentiment, Etsy faces significant hurdles in reversing the current downtrend.
