Etsy (ETSY 0.34%) was a much smaller business just a few years ago. Yet the pandemic helped lift annual sales to nearly $3 billion from $600 million back in 2019.
These days the marketplace platform specialist is more focused on trying to hold on to those huge gains than on aggressively expanding its sales footprint. That defensive posture helps explain why the stock is down over 30% so far in 2023 while the S&P 500 is up 18%. Management sees a long runway for growth following this consolidation phase, though. "We believe that our [total addressable market] is enormous," executives said in its early November earnings report.
Let's look at how Etsy is aiming to capture that huge market, and where those strategies could push the stock over the next several years.
Etsy is getting back to growth
The first step is to return Etsy to a healthy growth rate above the 7% year-over-year sales increase that investors saw in Q3. "We are undoubtedly operating in a challenging environment for spending on consumer discretionary items," CEO Josh Silverman told shareholders recently.
Etsy's sales volumes rose by just 1% year over year in the fiscal Q3 period that ran through late September, putting it behind diversified retailers like Walmart. Still, eBay is barely growing its sales volumes today, and so Etsy isn't alone in this struggle. Most Wall Street pros predict Etsy will boost sales by 6% this year following last year's 10% increase.
The path forward for Etsy
The path from there gets muddier, but Etsy wants to improve its unique merchandise offerings while making the shopping experience better. It recently upgraded the way it presents broad search results, for example, and has introduced new pricing and promotion tools for its merchants to use.
The best single trend for investors to watch for signs of progress here is Etsy's buyer pool. That metric posted modest gains in mid-2023 after several quarters of losses. But there's still a long way to go before Etsy can claim to be back in strong growth mode. Active buyers jumped to 90 million during the pandemic from 44 million in late 2019. The level has held roughly steady, though, since mid-2021.
Where Etsy stock will land
On the bright side, Etsy has a large pool of engaged buyers and past shoppers who simply haven't used its platform in the past year. Focusing on retaining and reactivating these customers makes sense in the current weak selling environment. The company is also boosting profit margin with help from rising merchant fees.
Yet for Etsy to generate strong returns from here, the business will need to improve its merchandise offering while dramatically expanding the services it offers to merchants. Shopify demonstrated the power of that software-as-a-service approach in recent quarters, and its sales expansion rate is now well above 20%.
There's little reason to believe that Etsy will accelerate growth toward that level anytime soon. Until investors see progress along these lines, they should simply follow this platform stock for now.
