Shares of Etsy (ETSY -4.40%) declined 6.9% in 2019, according to data from S&P Global Market Intelligence, lagging far behind the S&P 500's 29% gain, as investors grew concerned over the vintage and handcrafted e-commerce site's decision to forsake profits in favor of cementing its status as a top growth company.
That's not to say Etsy's year was all bad. Shares actually rallied more than 50% from the start of the year through the end of February as the market celebrated Etsy's strong fourth-quarter 2019 results -- revenue grew 47% year over year, translating to earnings of $41.3 million, or $0.32 per share. Both figures easily beat analysts' expectations for earnings of $0.21 per share on revenue closer to $195 million.
But the novelty wouldn't last; Etsy all but gave up its early gains with a steep 21% decline in August as revenue growth in the first quarter decelerated to "just" 37%. At the same time, Etsy raised its full-year revenue guidance while lowering its outlook for adjusted EBITDA margin -- a trend management blamed on the "short-term absorption of zero-margin revenue" after adopting a new unified advertising platform.
Etsy shares then plunged another 21% in October as investors lamented yet another top-line deceleration -- third-quarter revenue increased a seemingly solid 31.6% year over year, while this time net income fell by roughly 25.6% to $14.8 million, or $0.12 per share.
During the subsequent conference call, CEO Josh Silverman pointed out that it's "rare to see a company in our sector with such strong sustained revenue growth while simultaneously delivering some solid profitability."
Etsy will have a chance to change prospective shareholders' minds when it releases its crucial holiday-quarter results late next month. But in the meantime, as the broader markets roared higher and left Etsy in the dust last year, it seems clear many investors aren't convinced, considering revenue growth (perhaps understandably) has slowed while Etsy builds on a larger base.