Etsy (ETSY 1.61%) is one of the best examples of how much an external event like the COVID-19 pandemic can change a business' fortunes in short order. The health crisis led to a surge in online shopping, which boosted spending on the Etsy marketplace and led to robust customer and revenue growth. The e-commerce stock hit a peak in November 2021, but it's been a sad story since then, as financial results have deteriorated.
The situation hasn't improved this year, with shares rising less than 0.5% in 2025 (as of Dec. 15). The stock trades 82% below its all-time high, so investors might be ready to buy the dip. Before doing so, here's what to look for as 2026 is around the corner.
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Etsy is struggling to drive meaningful growth
Gross merchandise sales (GMS) on Etsy peaked at $12.2 billion in 2021. In 2024, that figure came in at $10.9 billion. And it fell 2.4% in the latest quarter (third-quarter 2025 ended Sept. 30). To be fair, Etsy dealt with a major pull-forward in demand during the pandemic's height, as shoppers swarmed the platform when in-person retail temporarily fell out of favor.
The issue, however, is that its marketplace specializes in unique, vintage, and handcrafted goods. These items are discretionary in nature, with top product categories being home and living, jewelry and accessories, and apparel. They don't push customers to conduct repeat transactions, which can put a cap on purchase behavior, especially when people are tightening their purse strings.
NYSE: ETSY
Key Data Points
Can 2026 be the year Etsy turns things around?
The biggest metrics that investors should keep an eye on are GMS and the user base (active sellers and active buyers). A best-case scenario is that more spending activity happens on the online marketplace, which will indicate more transaction and dollar volume. Additionally, if Etsy can attract more sellers and buyers, then it's a sign that these stakeholders see a compelling value proposition. Rising GMS and an expanding user base would mean that the company's network effect is still intact.
Etsy's success will depend on a favorable macro environment, of course. Lower interest rates might help spur consumer spending. But that's not a guarantee, particularly when affordability is an issue. The economy has generally been in solid shape in recent years, but that hasn't helped Etsy.
Expectations are low, as shown by the stock's lackluster performance. It's down 60% in three years, at a time when the e-commerce industry in the U.S. keeps increasing with each passing year. Maybe things will turn around for Etsy in 2026.
