As the holidays near, the amount of Etsy (ETSY -1.74%) ads you'll experience will likely ramp up. This time of year is huge for Etsy's sellers, as handmade and customized gifts are extremely popular. If it goes well, Etsy sellers should see a sales boost -- benefiting the company and sellers.

That would be a welcome change to the end of 2022 for Etsy, as the company has struggled to grow sales throughout the year. As a result, the stock is down about 45% year to date. Is now the time to buy Etsy stock? Or should investors wait until after the holiday season? Let's find out.

Etsy's sales and customers growth are trending in the wrong direction

As mentioned above, Etsy's gross merchandise sales (GMS) haven't experienced any growth this year.

Quarter  GMS Growth YOY
Q1 3%
Q2 0%
Q3 (3%)

Source: Etsy. YOY-year-over-year.

If Etsy hadn't raised its seller fee from 5% to 6.5% in April, Etsy's revenue would have likely trended in the same direction. However, revenue has grown by about 10% throughout most of 2023.

ETSY Revenue (Quarterly YoY Growth) Chart

ETSY Revenue (Quarterly YoY Growth) data by YCharts

Q4 and 2023's Q1 will be the last quarters without the overlap of quarters affected by the rate hike, so Etsy will need to show GMS growth soon or investors may begin dumping the stock in preparation for flat to negative revenue growth.

To do this, Etsy will need to engage its buyers, something it hasn't managed to do throughout 2022.

Metric Q3 2021 Count Q3 2022 Count YOY Growth
Active Buyers 89.4 88.3 (1.2%)
Habitual Buyers 8.0 7.6 (5%)

Source: Etsy. Note: Active buyers have made a purchase within the last 12 months, and habitual buyers have spent at least $200 and purchased on six separate days in a 12-month period.

Etsy will need its core group of buyers to return if it is to have a successful 2023, and with discretionary funds drying up thanks to inflation, this may be wishful thinking. However, if Etsy's sellers can capitalize on the ads the company is placing on their behalf, it may turn it around.

Still, I'm not convinced that this holiday season will be what Etsy needs. Etsy also isn't doing itself any favors on the financial front either.

A significant loss for Etsy

Looking at Etsy's most recent quarterly report, you may notice a glaring $963 million loss compared to $594 million in revenue. That's because Etsy wrote down its Depop and Elo7 investment through an impairment charge. This means the premium Etsy paid for these two businesses last year isn't worth it this year, so Etsy took a one-time charge to reduce the value of the acquisitions on its books.

This doesn't bode well for the investments, but after subtracting it out, it reveals something positive about operating expenses.

In Q3, operating expenses rose 11.8% YOY. While this is slightly faster than Etsy's 9.1% Q3 revenue growth, it's a much more reasonable rate than those of many other companies that have overhired. This shows management has been responsible with its hiring, giving me confidence in that side of the business.

As for the stock, it's trading at the lower end of its usual range, although Etsy's price-to-sales valuation has been tumultuous in its life as a public company.

ETSY PS Ratio Chart

ETSY PS Ratio data by YCharts

A similar business, eBay, has traded for about four times sales over the past decade. So if you use that company as a comparison, Etsy has some way to fall before it reaches a comparable valuation. 

That's a lot of check marks against Etsy; unfortunately, I don't think it will get any better. While I'm an Etsy shareholder, I don't think now is a great time to add to or establish an Etsy position. Q4 could be a huge turning point for Etsy, whether good or bad. It will also have long-term ramifications, as Etsy may have reached its peak audience. If the company can show meaningful GMS growth, then I will consider adding more to the stock. Until I see that, I'm being cautious.

I'm not sure where Etsy's stock will go from here, but there are just too many question marks to purchase Etsy stock right now.