What happened

Shares of online marketplace Etsy (NASDAQ:ETSY) took a hit on Thursday, falling as much as 17.5%. As of 12:15 p.m. EDT, the stock was down about 15%.

The stock's gain follows Etsy's third-quarter update. While the results were solid, some investors may be disappointed with the company's in-line earnings per share and a narrowing gross profit margin.

A chalkboard sketch of a chart showing a stock price moving lower.

Image source: Getty Images.

So what

Etsy's third-quarter revenue rose 31.6% year over year to $197.9 million. This revenue, however, included $6 million sales from music-gear online marketplace Reverb -- a company Etsy acquired in August.

The company's earnings per share for the period were $0.12, equal to analysts' consensus estimate for the metric.

Etsy's gross margin for the period was 65.2%, down 360 basis points from 68.8% in the year-ago period. "The contraction in gross margin was primarily driven by fees related to Etsy Payments, amortization related to our recent acquisition of Reverb, and our consolidated ad platform, Etsy Ads, which we believe is a tailwind to revenue growth and GMS," management said in the company's third-quarter earnings release.

Now what

Etsy updated its full-year outlook to incorporate the impact of its Reverb acquisition. The company now expects revenue to rise 34% to 35% year over year, up from a previous forecast for 32% to 34% growth. But the high end of Etsy's expectation for its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is now lower. The company expects its adjusted EBITDA margin for the full year to be between 22% and 23%. Previously, Etsy expected the profitability metric to be between 22% and 24%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.