Etsy: Trade War Uncertainty Amid Tariff Confusion

Etsy, an e-commerce platform for handmade and vintage items, is facing challenges due to the US-China trade war. Europe has stopped shipping small parcels to the US due to confusion over tariffs. Despite this, Etsy's sales have been boosted by the conflict, as consumers turn to online marketplaces for unique goods. However, the company still faces challenges, including rising production costs and uncertainty over the future of the trade war.

The ongoing US-China trade war has had significant implications for global trade, including the e-commerce sector. Etsy (NASDAQ:ETSY), an online marketplace for handmade and vintage items, has been navigating these challenges with mixed results. Europe has recently halted the shipping of small parcels to the United States due to confusion over tariffs, which previously allowed parcels worth less than $800 to enter without duties. This change has the potential to disrupt supply chains and increase the cost of goods from Europe.

Despite these disruptions, Etsy has seen a boost in sales as consumers turn to online marketplaces for unique goods. The platform's focus on handmade and vintage items positions it well to benefit from the trade war, as rising tariffs make imported mass-produced goods more expensive. This could make Etsy's unique crafts more attractive to consumers seeking alternatives to cheaper, imported goods.

However, Etsy faces several challenges. The company's marketplace has been flooded with mass-produced goods, often in violation of Etsy's rules. Additionally, the de minimis loophole, which allowed packages of $800 to be imported duty-free, has been closed for European countries, potentially increasing costs for sellers. Etsy's CFO Lanny Baker has stated that only about 1% of goods sold on the platform originate from China, but a significant portion comes from Europe, which is also affected by trade measures [1].

One area where Etsy is performing well is its Depop platform, which specializes in used and vintage clothing. Depop has seen strong growth, with gross merchandise sales (GMS) up over 35% in 2024 compared to the previous year. The app has been downloaded by over 10 million people on Android alone and has received positive user feedback [1]. While Etsy's main marketplace has seen revenue growth slow, Depop's performance suggests that there is potential for growth in the used goods market.

Etsy's valuation and fundamentals present mixed signals. The company's GAAP PE (TTM) ratio is high at 43.91, but the non-GAAP PE ratio is more reasonable at 15.07. Revenue growth has been modest at 2.4%, and active buyers have decreased by 4.6% to 87.3 million. However, Etsy did bring in 4.8 million new customers and reactivated 6.1 million users, indicating some signs of growth [1].

The trade war's impact on Etsy remains uncertain. If consumer spending remains tepid, Etsy could face further challenges. However, if hiring picks up, particularly among college graduates, it could boost spending among Gen Z consumers, a crucial demographic for Depop. Etsy's next quarterly earnings release, scheduled for the end of October, will provide more insight into the company's performance in the face of these challenges.

References:
[1] https://seekingalpha.com/article/4817015-etsy-trade-war-bodes-well-but-challenges-remain