Etsy's Disappointing Q4 Results: A Closer Look

Etsy Inc. (ETSY) reported its fourth-quarter 2024 earnings on Wednesday, February 19, leaving investors with a mix of positive and negative surprises. While the company's revenue and earnings per share (EPS) beat analyst estimates, its revenue missed the mark, and the stock price fell as a result. Let's dive into the details and explore what these results mean for Etsy's long-term growth prospects.



Revenue Misses Estimates, EPS Beats

Etsy's fourth-quarter revenue grew by 1.2% year-over-year to $852.2 million, but this figure fell short of the $861.8 million anticipated by analysts. Despite the revenue miss, Etsy's EPS of $1.03 beat the consensus estimate of $0.93. The company's net income surged by 56% year-over-year to $129.9 million, supported by a leaner cost structure and the lack of prior-year restructuring costs. Etsy's adjusted EBITDA stood at a historical high of $250.6 million, maintaining a strong margin of 29.4%.

GMS Decline and Active User Base Shrinks

Etsy's consolidated GMS declined by 6.8% year-over-year to $3.7 billion, primarily due to waning consumer spending on non-essential goods. The company's marketplace GMS decreased by 8.6% to $3.3 billion, a result of pressure on consumer discretionary product spending, challenging year-over-year comparisons in a shortened holiday season, category mix, and a highly promotional and competitive retail environment. Etsy's active buyers decreased by 2.6% to 89.6 million, while its active sellers dropped by 10%. However, the company managed to re-engage a record 9.8 million lapsed buyers and attract nearly 6.9 million new buyers.



Depop's Success and Etsy's Outlook

Depop, one of Etsy's subsidiaries, achieved record GMS figures since its acquisition, contributing to full-year GMS growth of 31.6%. Etsy expects first-quarter FY25 GMS to decline at a rate similar to the year-over-year performance reported for the fourth quarter of FY24. The company expects a first-quarter adjusted EBITDA margin of about 25% - 26%.

Etsy's Strategic Focus and Long-Term Growth Prospects

Etsy's strategic focus on quality, reliability, and discovery sets it apart from competitors by emphasizing personalization and human connection. To differentiate itself further, Etsy can continue to invest in its seller community, search and recommendation algorithms, and sustainability efforts. By deepening buyer engagement and enhancing its unique marketplace position, Etsy seeks to navigate competing pressures and economic headwinds, ultimately working to re-accelerate GMS growth.

In conclusion, Etsy's fourth-quarter results were a mixed bag, with revenue missing estimates but EPS beating expectations. The company's GMS decline and shrinking active user base are concerning, but its strategic focus on quality, reliability, and discovery, along with its commitment to technological investments and expansion, position it well for long-term growth. Investors should monitor Etsy's progress in these areas and evaluate its success using relevant metrics, such as GMS growth, active buyers and sellers, GMS per active buyer, and profitability metrics.