What happened
Shares of Etsy (ETSY -0.10%) stock lost 6% in October according to data provided by S&P Global Market Intelligence. At the same time, the S&P 500 gained 7.5%. Investors might be preparing for a potentially disappointing third-quarter earnings report.
So what
Etsy didn't report any significant news in October, but it was impacted by economic and industry trends. Fellow e-commerce companies Amazon and Shopify, which together account for around half of total U.S. e-commerce gross merchandise sales, both reported mixed earnings results. Investors sent Amazon stock plummeting on its report, mostly due to its outlook, while they gave Shopify stock a boost after it reported healthy revenue growth.
Etsy stock has come under pressure since growth decelerated after the pandemic. So far, it has continued to post sales growth and has remained profitable, which should signal some confidence. But triple-digit sales growth has turned into single- or double-digit growth over the past few quarters, and gross merchandise volume (GMV) was slightly negative year over year in the 2022 second quarter. That included a 6% drop in Etsy's core GMV. It was able to post revenue growth in that quarter mostly by raising its fee for sellers, but it was also aided by performance in some of its acquired companies as well as ad revenue.
For the third quarter, Etsy is expecting GMV to continue trending slightly negative year over year and for consolidated revenue to increase around 5% at the midpoint.
Now what
Etsy operates a niche business connecting sellers and buyers of handmade and original products. It entered the mainstream during the pandemic, attracting customers with its large selection of handmade masks, after appealing to a smaller community of handmade enthusiasts for many years. Its focused niche gives it an edge in that market, but it also limits it despite its emergence as a key e-commerce player. As customers resume many pre-pandemic habits, it's making moves to keep growing. These include making acquisitions, raising fees, and expanding marketing.
As a platform, its model has lower overhead and has lent itself to strong profitability. Despite contracting sales growth, it remains profitable. However, investors look to be pessimistic about its near-term outlook in a volatile economy. Etsy's core product line consists of items that are not essentials, and inflation is likely to keep consumers away from these discretionary products.
On the plus side, Etsy typically provides conservative guidance. If it beats on revenue, investors may reward its stock price. Stay tuned for the report today.
