What happened

Shares of Etsy (ETSY -1.99%) fell 9.7% on Thursday, following the release of the online marketplace's second-quarter results. 

So what

A 13% rise in gross merchandise sales -- essentially the dollar value of items sold on Etsy's platform -- helped to drive a 23.4% year-over-year increase in revenue, to $528.9 million. That was above the $524.7 million in revenue Wall Street had expected. 

A person is pointing to a downwardly sloping stock chart.

Investors sold off shares of Etsy on Thursday. Image source: Getty Images.

However, Etsy's sales growth decelerated sharply from the 141% increase it reported in the first quarter. Its active buyer and seller growth also slowed to 50.1% and 66.7%, respectively, from 89.9% and 67.1% in the prior quarter. 

Now what 

Looking ahead, management expects Etsy to generate revenue of $500 million to $525 million in the third quarter, which would be a year-over-year increase of roughly 13.5% at the midpoint. That's below the $527.5 million analysts had projected, suggesting that its growth will continue to slow.  

Etsy, like many e-commerce marketplaces, experienced a surge in demand from buyers during the early stages of the coronavirus pandemic. But with vaccinations climbing and the economy reopening, more people are beginning to shop in traditional retail stores once again.

Still, the wide-scale migration of retail sales to online channels is likely to persist even after the health crisis eventually subsides. So, while Etsy's pace of expansion could certainly slow in the coming quarters, its long-term growth story remains intact.