What happened

Shares of Etsy (ETSY -0.80%) were heading lower today after the crafts-based online marketplace said revenue growth in its first quarter was slightly lower than expected and gross merchandise sales decelerated for the first time in over a year. As a result, the stock was down 11.4% as of 11:35 a.m. EDT.

So what

Gross merchandise sales (GMS) on the platform rose 19% to $1.02 billion, which drove revenue up 40.1% to $169.3 million, slightly below estimates at $170.1 million. The outsize growth in revenue compared to GMS came thanks to an increase in commissions and seller fees last year.

A man holding a stained-glass sculpture of a bird.

Image source: Etsy.

Growth was strong in both its marketplace segment and services, and active buyers rose 18% to 41 million.

Etsy also noted that it temporarily paused some marketing investments in the quarter in order to test some of its models, which may have explained the sequential deceleration in GMS. That did, however, cause profits to surge, as operating income jumped 129% to $31.6 million, and adjusted earnings per share rose from $0.10 a year ago to $0.24, easily beating expectations at $0.14.

CEO Josh Silverman said, "We are pleased to report another quarter of strong growth. We began the year with a fresh slate of product initiatives and our teams' development velocity surged to an all-time high, delivering healthy GMS growth during the quarter."

Now what

Etsy actually boosted its full-year guidance, as the company is now seeing GMS rising 18% to 21% to $4.6 billion to $4.8 billion from a previous forecast of 17% to 20%. And revenue is up 30% to 32% to $785 million to $797 million ahead of a prior range of $779 million to $797 million. It also raised its EBITDA guidance for the year $1 million to $182 million to $198 million.

Considering the improved guidance, today's sell-off is a little surprising, but Etsy stock had more than doubled coming into the report, so this looks like more of a modest correction after the huge gains the stock has made over the last few years. Despite today's slide, the company remains on track.