Etsy (ETSY +3.74%) has taken investors on a wild ride over the past few years. The online marketplace specialist's shares soared through most of the pandemic but fell hard during the subsequent pullback in e-commerce and consumer discretionary spending. If you bought Etsy stock a year ago, you'd be looking at losses of nearly 50% right now.
Yet its industry should eventually rebound. And in the meantime, Etsy is making aggressive moves aimed at reducing costs and accelerating growth. Let's see how these factors might set investors up for better returns over the next several years.
The latest performance
There hasn't been much for shareholders to celebrate in Etsy's recent operating updates. Sales volumes were flat last quarter, for example, meaning all its revenue growth came from its non-core business lines like advertising and transaction fees. That result stacks up poorly against more established industry peers like Amazon and Shopify, which are reporting double-digit volume growth right now.
NYSE: ETSY
Key Data Points
There were some bright spots in Etsy's Q3 announcement, including stronger sales in Europe. And the company was able to reengage many customers who had stopped shopping on its platform in the past year. Yet management said in a mid-December letter to shareholders that it isn't OK that sales volumes have remained roughly flat since 2021. "This is ultimately not a sustainable trajectory and we must change it," CEO Josh Silverman said.
The path forward
Etsy is busy cutting costs, currently laying off about 10% of its workforce as part of a wider restructuring plan. Shopify made a similar move in early 2023 that helped spark a quick rebound in its profitability. That stock went on to soar through most of the year, but the odds are stacked against Etsy following that same path over the next few years.
After all, Etsy isn't shaking up its core business structure like Shopify did by selling off its logistics arm last year. Management is simply reorganizing and targeting higher efficiency. Shopify also enjoyed much faster sales growth in 2023 that arrived just as costs started coming down. Etsy is showing no signs of that accelerating growth to date, and so the stock is understandably trailing the market and most of its e-commerce peers.
Where the stock goes from here
Investors will know more about Etsy's 2024 momentum after the company reports its Q3 results in February. This announcement could boost Wall Street's optimism about the business's potential over the next few years, but only if Etsy can show progress at increasing efficiency and speeding up its growth rate.
Investors should follow operating profit margin and sales volumes for confirmation that Etsy is on the right track on these twin goals heading into the new fiscal year. The company is busy launching upgrades to its platform that it sees improving the customer shopping experience. Etsy is trying to boost the value it provides to merchants, too, through more service offerings.
It isn't a stretch to believe annual sales will be much higher in a few years if the e-commerce specialist attracts more buyers and sellers with these upgrades. For now, though, investors should take a wait-and-see approach with the stock and look for more concrete signs that Etsy has put its three-year growth slump behind it.
