What happened

Shares of Etsy (ETSY 1.56%) were trading lower today as the company turned in another quarter of flat growth and offered disappointing guidance for the third quarter.

As of 12:38 p.m. ET, the stock was down 11.3% on the news.

So what

Etsy said gross merchandise sales (GMS), or the total dollar value of goods sold on its platform, fell 0.6% to $3.01 billion, showing the company is still struggling to return to growth after the pandemic boom faded.

Revenue in the quarter rose 7.5% to $628.9 million as the company benefited from an earlier fee hike. That figure topped analyst expectations at $619.1 million.

Active buyers rose 2.5% to 96.2 million, while active sellers were up 12.3% to 8.3 million, a positive for the company's long-term growth. Management also said its core Etsy marketplace returned to GMS growth in May and June. 

On the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose slightly from $162.7 million to $166.2 million as spending in areas like product development rose. Generally accepted accounting principles (GAAP) earnings per share fell from $0.51 to $0.45 due to an impairment charge associated with Elo7, the "Etsy of Brazil," which it sold at a discount in July. The bottom-line result was slightly better than analyst expectations of $0.43 in EPS.

CEO Josh Silverman said, "We believe we can unlock significant growth opportunities by making Etsy a more organized, curated, and reliable place to shop, and we are aligning our investments and efforts with initiatives that move us toward this vision."

Now what

Looking ahead, management forecast GMS of $2.95 billion-$3.1 billion, essentially flat on a sequential basis, and it sees revenue of $610 million-$645 million in the third quarter, below estimates at $632.4 million and representing an increase of 11.2% from a year ago.

Despite beating headline estimates, the ongoing lack of growth in GMS is clearly a concern for investors. Etsy stock is unlikely to rebound until it shows growth in that category.