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Why Etsy Stock Fell 34% Last Month

By Jeremy Bowman – Updated Apr 6, 2020 at 4:43PM

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Shares of the crafty marketplace took a hit on coronavirus concerns.

What happened

Shares of Etsy (ETSY 1.93%) were sinking last month as the stock fell on concerns about the expanding coronavirus outbreak. As an online marketplace focused on mostly discretionary, artisan-made items, Etsy seemed to be at risk as consumers shifted their shopping habits to food and essentials and away from the kind of items that Etsy sells. During its slide, the stock also got hit by an analyst downgrade.

According to data from S&P Global Market Intelligence, the stock finished March down 34%. Much of the stock's decline came in the second week of the month:

^SPX Chart

^SPX data by YCharts

So what

Etsy shares fell sharply in the second week of March as the country took its first steps into shutdown mode, with schools closing, businesses mandating work-from-home policies where feasible, and sports leagues canceling games indefinitely. That sent an economic shock through the stock market and American business and led to stockpiling of goods like food, cleaning products, and toilet paper. Consequently, investors favored crisis-proof stocks and sold others. Not surprisingly, Etsy, which may be best known for products related to weddings, jewelry, and gifts, found itself on the losing side.

A 12-piece panda puzzle

A panda puzzle featured on Etsy. Image source: Etsy.

On March 19, Roth Capital downgraded the stock from buy to neutral as analyst Darren Aftahi lowered its price target from $61 to $41. Aftahi said channel checks found that small-and-medium-sized businesses and e-commerce sellers have begun to struggle in the face of the growing pandemic. He also said traffic for most Etsy sellers had slowed significantly since the beginning of the month and predicted the stock would trade sideways until the outbreak begins to fade. 

Now what

Despite the poor performance in March, Etsy shares have surged in the first few sessions in April. Through April 6, the stock has jumped 21% this month. In a business update last Thursday, the company said gross merchandise sales (GMS), the total volume of sales in its marketplace, had jumped 32% in the first quarter, though growth slowed notably from a 41% surge in January an February to just mid-teens in March.  Management also pulled its guidance for the year but said its financial position was solid and that it was in a better position than many other retailers, especially brick-and-mortar chains. It also noted that categories like games and puzzles had performed well toward the end of March. Investors were reassured by the announcement, and the stock surged over the next two sessions.

While Etsy's growth will slow during the outbreak, the company appears to be more resilient than investors had initially thought. 

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Etsy. The Motley Fool has a disclosure policy.

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