In the third quarter, Etsy (ETSY 2.44%) reported revenue of $594.5 million and adjusted earnings per share of $0.58, both of which crushed the Wall Street analyst consensus estimate. What's more, the leadership team, led by CEO Josh Silverman, provided fourth-quarter guidance that really pleased investors. The stock is up 44% since the announcement.

But there was one critical metric shareholders might have missed in all the upbeat news, and it's something that can have a profound impact on this top e-commerce stock. Let's take a closer look. 

Shrinking user base 

Known for its unique and handcrafted goods, Etsy has registered tremendous growth over the years, and the COVID-19 pandemic further boosted the online marketplace as revenue surged 35% in 2021 after skyrocketing 111% in 2020. What's more, the business was able to add 50.0 million net-new active buyers and 4.8 million net-new active sellers during that two-year period. 

However, in the latest quarter, Etsy reported that both its active buyer and active seller count decreased 1.9% and 0.9%, respectively, year over year. This was the first drop in at least the past five years. 

For a business that depends on growing its user base in order to increase gross merchandise sales (GMS) and revenue, this is obviously not a good sign. Etsy makes money by collecting a slice of any sales that take place on its marketplace (measured as the take rate). Obviously, more users can translate to more GMS and better prospects for Etsy. 

The company's largest product category by far is home and living, accounting for roughly 30% of overall GMS. In this type of inflationary environment, purchases of these items can be put on hold by shoppers. Plus, most of the merchandise offered on Etsy appears to be discretionary in nature, which doesn't bode well in a softening macroeconomic climate.

Is it time to ditch the stock? 

While a declining base of buyers and sellers is certainly not something shareholders want to see, I'm not too concerned about it at this moment. Etsy's growth throughout the worst of the pandemic was astounding, and it resulted in a pull-forward of demand. Spending more time than ever stuck at home and with few opportunities to spend on categories like travel and leisure, people turned to online shopping. On the latest earnings call, Silverman said: "And at the time millions and millions of those were people who came for masks. Millions and millions of those came in 2020, when you couldn't shop offline in very many places."

He's referring to the massive influx of new buyers. Shopping behavior might simply be normalizing right now. 

To Etsy's credit, it really does offer a differentiated experience. According to a 2021 survey conducted by the company, 87% of buyers said that Etsy has items they can't find elsewhere. This is a good position for the business to be in.

What's also promising is that despite a smaller user base, Etsy was still able to grow revenue 11.7% year over year in the third quarter. And for the current period, management expects revenue to be $740 million (at the midpoint), still good for a 3% increase. A strong holiday-shopping season could lift that number higher. 

If the economy weakens further, however, and we enter a full-blown recession, Etsy's numbers will likely get worse before they get better. As a result, in the quarters ahead, investors should pay very close attention to trends with active buyers and active sellers on the platform. I still don't think this is reason to panic and sell the stock, but shareholders need to keep an eye on this data point as it demonstrates the strength of the marketplace.