It's been a wild year for e-commerce marketplace Etsy (ETSY -0.72%). Though the stock of the site for handmade and vintage goods is up some 80% from its multiyear lows in June 2022, it remains down about 60% from all-time highs set in late 2021 when the early pandemic online-shopping frenzy was still in full swing.  

A number of headwinds are still blowing against Etsy's progress -- the latest being a report from short-seller Citron Research, which claimed Etsy's marketplace is rife with counterfeit goods and fake merchants.  

Given the circumstances, though, Etsy's financial results held up well. With the current 2023 economic outlook full of peril, is Etsy stock still a buy?

Combating some pandemic bias

I have to acknowledge that I have to combat some bias with Etsy, especially as I've owned it since long before the pandemic. It's been a very good investment for me over the years, in spite of the 2020 and 2021 boom and subsequent crash.

Given that I'm sitting on a sizable profit, I have to fight my own bias toward thinking Etsy is still as good a buy as it was a number of years ago.

So let's start with the bad. Citron Research might have a point about Etsy's marketplace harboring bad actors in the e-commerce space. Unfortunately, this is a problem for all e-commerce companies -- Amazon, eBay, and others included -- as it is for all internet sites where third-party users are allowed to post and engage with other users (like social media sites, for example).

Etsy will have a constant battle on its hands to rein in fake sellers and those violating rules surrounding trademarks.

I believe there are even greater risks at this juncture, though. Etsy held on to most of its pandemic gains when shoppers returned to in-person store visits.

In 2022, gross merchandise value (GMV), or the total value of merchandise sold, was 96% of what it was in 2021. But now inflation poses a big risk. With the basic cost of living on the rise, many consumers are beginning to focus on value retail, rather than the unique (and often pricier) merchandise on Etsy's marketplace.

There are also problems related to the U.S. dollar, specifically its run-up in value against other international currencies (a side effect of the Fed's record interest rate hikes last year). This is an issue that will likely persist at least through the first half of 2023. For full-year 2022, GMV was down 1.3% from 2021 to $13.3 billion, but it was up 1.6% year over year when excluding the effects of currency exchange.

And lastly, there's a risk that Etsy sellers will seek out alternatives to sell their goods. The company increased its take rate for items sold on the site in spring of 2022, raising its fee from 5% of a transaction to 6.5%. Some sellers have left, citing the rising cost of doing business on Etsy. Total active sellers (across Etsy, as well as on its subsidiary marketplaces Reverb, Depop, and Elo7) decreased 0.7% in 2022.

Recent revenue growth at Etsy is primarily coming from that take-rate increase last year. As the positive financial effects of that fee hike subside this April, Etsy's progress on revenue and profit growth could come under pressure. 

Is Etsy a good value right now?

Despite a myriad of issues, I believe Etsy is doing its best to hold its own. Revenue in the fourth quarter of 2022 exceeded management's guidance from a few months ago, coming in at $807 million versus a high-end guide for $780 million. Free cash flow (FCF) was very healthy in 2022, coming in at $653 million (or a healthy 25% FCF profit margin). Etsy used $426 million of this FCF to repurchase stock.

The outlook for the first quarter of 2023 isn't so bad, either. Revenue is expected to be $600 million to $640 million, compared to $579 million a year ago.

Granted, the outlook gets quite a bit foggier for the remaining three quarters of 2023, because of economic challenges and the growth from the take-rate increase subsiding. Given this dynamic, as well as the strong stock rebound since last summer, I don't believe Etsy is quite as good a value as it was just a few months ago

Nevertheless, the stock does trade for 25 times trailing-12-month FCF. If Etsy can continue successfully navigating through the dark economic woods that the e-commerce industry is currently in, shares could still be a fair value for the long-term investor. I'm personally not buying, but I'm happy to continue holding my existing Etsy position at this juncture.