The Company’s Struggles
Etsy, renowned for its unique and handmade goods marketplace, witnessed impressive growth during the early stages of the pandemic. However, it has faced an uphill battle to preserve those gains over the past year. Unsurprisingly, Etsy’s shares have significantly underperformed the market as a result. The stock has dipped approximately 50% in the last three years and remains almost 73% down from its all-time high in late 2021. Nonetheless, investors are more concerned about the company’s future prospects than its historical performance.
The Initial Focus
The primary objective of Etsy’s management is to restore sustainable growth for the company. In the third quarter, sales volumes remained stagnant following a decline in the first half of 2023. Encouragingly, Etsy continues to attract buyers, in contrast to competitors like eBay, which are experiencing modest losses. Management aims to stabilize the business in the upcoming quarters before targeting accelerated growth once consumer discretionary spending rebounds. CEO Josh Silverman expressed his belief that Etsy can become more relevant to a broader global audience, stating, “We believe Etsy can be more relevant, more often, to millions of more buyers around the world.”
Revamping the Platform
Etsy recognizes the need to revitalize the customer shopping experience to differentiate itself from rivals such as Amazon. In the years to come, the company plans to enhance the platform’s organization and curation, enabling buyers to effortlessly explore enchanting products. Simultaneously, Etsy aims to increase the platform’s value for merchants by introducing features that assist sellers with advertising, promotions, pricing, and payment processing. Shopify’s success in this area illustrates how such enhancements can fuel software-as-a-service sales, elevate profit margins, and drive overall growth. Leveraging its significant sales footprint, Etsy possesses valuable resources to propel it towards achieving these goals.
An Uncertain Journey
Etsy faces no guarantees in meeting its rebound targets, nor can it ensure a swift recovery that satisfies Wall Street’s expectations. Presently, the stock trades at approximately four times annual sales, a substantial drop from its pandemic-induced peak of nearly 20. Its price-to-sales ratio has halved over the past year. In contrast, Shopify, experiencing significantly faster growth, is valued at almost 15 times annual revenue. To garner a reasonable hope of expanding its stock valuation, Etsy must make substantial platform improvements in the coming years. Investors should closely monitor vital metrics such as sales volumes, buyer growth, and profit margin for signs of progress.