What happened
Shares of Etsy (ETSY 0.71%) underperformed the market this week, dropping 18% through Thursday trading compared to a 2% decline in the wider market. That slump added to a tough year for owners of the marketplace platform stock, which is down 31% so far in 2023, according to data provided by S&P Global Market Intelligence.
This week's drop can be attributed to Etsy's quarterly earnings report, which showed some encouraging engagement trends but still left Wall Street wanting more.
So what
Etsy announced on Wednesday that sales volumes were $3 billion on its marketplace, down less than 1% after adjusting for currency exchange rate shifts. Overall revenue, which includes seller fees, was up 8%. That result marked a slowdown from the prior quarter's 11% increase.
There were some positive developments in the quarter. Etsy gained 3% more buyers through late June compared to a 1% uptick in the previous quarter. Management said that retention rates improved as well.
On the downside, these shoppers spent less on the platform than in the past. Average annual spending per active buyer fell 6% to $128. Net profit margin also declined, dropping to 10% of sales from 13% of sales a year ago.
Now what
In their comments about the quarter, management focused on plans to reaccelerate volume growth over the next few quarters. "We believe we can unlock significant growth opportunities by making Etsy a more organized, curated, and reliable place to shop," CEO Josh Silverman said in a press release.
Investors will be watching metrics like the buyer pool, average spending per user, and profit margin for signs of progress on these goals. In the meantime, Etsy's short-term outlook is calling for modest growth in the next quarter. Transaction volumes in Q3 should land between $2.95 billion and $3.1 billion, executives predict, with revenue coming in between $610 million and $645 million.
That forecast implies accelerating sales growth, mainly thanks to higher seller fees. But the stock might remain under pressure until Etsy can show stronger metrics in areas like average spending and overall profitability.
