During the last three months of 2022, Etsy (ETSY -1.41%) reported revenue growth of 12.6% to $807 million, which was above the $755 million that Wall Street analysts were expecting. However, diluted earnings per share of $0.77 not only missed analysts' expectations of $0.80, but they were 30.6% lower than the year-ago period. The stock is down about 8% since the Feb. 22 announcement. 

But while most investors probably immediately focus on the top and bottom lines, two other important metrics caught my attention about Etsy. Continue reading to find out what they are and what they could mean for the top e-commerce company's prospects. 

A sign of weakness? 

In the fourth quarter, Etsy's gross merchandise sales (GMS), which is a measure of the entire transaction volume on its various marketplaces, totaled just over $4 billion. During the year, this is generally the strongest three-month period for the business, thanks to the busy holiday shopping season. But that GMS amount was 4% lower than Q4 2021. On a full-year basis, GMS was down 1.3%. 

Because Etsy essentially collects fees based on the GMS on its platform, a higher number over time is obviously better. Difficult comparisons and a normalizing of demand following the pandemic surge can help explain the slight decline. During the earnings call, CFO Rachel Glaser mentioned that "credit card and other third-party data shows that there may be an overall shift in consumer demand to services and household supplies like groceries and away from discretionary categories." 

Looking ahead, the management team sees GMS falling 6% year over year to total $3.05 billion (at the midpoint) in the first quarter of 2023. But a return to growth is possible after that. "In a stable macro environment, the math would suggest a return to GMS growth rates in the teens in the second half of this year," said Glaser. Obviously, the uncertainty right now paints an unclear picture. 

Another metric that shareholders should focus on is the user base. As of Dec. 31, Etsy counted 95.1 million active buyers and 7.5 million active sellers on its platform. These were both down about 1% from a year earlier. Again, more users can mean more transactions and the chance of greater GMS, leading to better revenue for Etsy. 

Quarter over quarter, though, the number of active buyers and active sellers did increase, so this could be a sign that Etsy's customer base is back in expansion mode. Or it could just be a direct result of the holiday season. However, if there is a recession in 2023, it's probably likely that user growth remains under pressure. 

Keep the right perspective 

These two data points, GMS and active users, are important indicators of the e-commerce platform's strength. As these two figures get bigger, there's no doubt that Etsy will become a more successful enterprise with greater sales and profits.

And while shareholders might start to worry about these numbers trending in the wrong direction in the most recent quarter, I think it's worth having the right perspective. This will help to frame Etsy's latest numbers in the right context. 

The business grew rapidly thanks to the coronavirus pandemic. And because online shopping became so popular, with e-commerce's share of overall retail spending in the U.S. peaking at 16.4% in Q2 2020, there was probably some pull forward of consumer demand. We saw similar trends happen with other pandemic winners, like streaming leader Netflix and digital payments innovator PayPal. 

But now things appear to be normalizing. Home Depot, for example, called out a shift in consumer spending from goods to services. And this situation will likely continue to have an adverse impact on Etsy's performance near term.

Therefore, I don't view this necessarily as a sign that the company's competitive position is weakening. It could just prove to be a temporary speed bump as a direct result of the uncertain macro environment. Nonetheless, investors need to keep a close eye on these metrics in future quarters.