Etsy's Q4 Sales Miss Estimates, Stock Drops Amid Market Challenges

Etsy (NASDAQ: ETSY), the popular online marketplace for handmade and vintage items, reported mixed fourth quarter 2024 earnings on Wednesday, Feb. 19. The company's revenue of $852.2 million was up 1.2% year over year but fell short of the $861.8 million anticipated by analysts. Despite the positive surprise in earnings per share (EPS) at $1.03, the quarter's mixed performance led to a drop in Etsy's stock price.

The quarter's results reflect the ongoing challenges in the e-commerce landscape, with consumer spending on non-essential goods waning and intense competition among retailers. Etsy's consolidated Gross Merchandise Sales (GMS) declined 6.8% to $3.7 billion, primarily due to these market headwinds. The company's active buyers decreased by 2.6% to 89.6 million, while habitual buyers dropped by 9.5% to 6.4 million, indicating potential challenges in maintaining customer engagement and purchase frequency.

However, Etsy's focus on services revenue and Etsy Ads has contributed to its financial resilience. The company's revenue growth was primarily driven by services revenue, with Etsy Ads being the primary contributor. This strategic focus on services revenue has enabled Etsy to maintain strong profitability and operational efficiency, even in the face of market challenges.

Etsy'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. Its adjusted EBITDA reached a record $250.6 million, with a margin of 29.4%. Despite the decline in GMS and active buyers, Etsy's robust cash position of $1.2 billion and efficient cash flow conversion (90% of adjusted EBITDA) allowed the company to deploy capital effectively, reducing share count by 12.2 million shares through share repurchases.

Looking ahead, Etsy management expects a continuous GMS decline similar to that seen in the fourth quarter, with a projected take rate of about 23% and an adjusted EBITDA margin between 25%-26%. The company's focus remains on technological investments and expansion, aiming to deepen buyer engagement and enhance its unique marketplace position. By personalizing the shopping experience and leveraging data-driven innovations, Etsy seeks to navigate competing pressures and economic headwinds, ultimately re-accelerating GMS growth.