Etsy: Green Shoots Are Not Enough To Generate Optimism

It had been a little over two years ago when I concluded that shares of Etsy (ETSY) were muddling through into the holiday season. This came after the post-pandemic boom had ended, with revenues and activity levels normalizing, to which no quick avail was seen in a tougher economic and competitive environment.

Continued challenges have been seen in the period ever since, not just with declining GMS but also declining engagement on the platform. While some green shoots are seen on this front, I am not yet sold on the idea yet, given quite a prolonged underperformance.

The incoming CEO results in some positive changes, as it seems, but it is far too early to become upbeat here, with lots of work still to be done.

All About Creativity – The Starting Point for Special

Etsy describes its own business as a two-sided e-commerce platform that offers special and non-commoditized merchandise, as the company has diversified into a fashion resale marketplace as well, following the purchase of Depop.

The core marketplace consists of over 86 million active buyers, three-quarters of whom are located in the US. The company has some 5.5 million active sellers, with this number split evenly between US- and international-based sellers. Both the numbers of buyers and sellers have come down quite a bit from the pandemic-related peak.

The distinguishing feature of the platform is that non-commodified and specialized products are traded here, making e-commerce more human while increasing engagement and loyalty. Outside the core creative platform, Depop is a large secondhand fashion marketplace, connecting some 6.6 million active buyers with 3.0 million active sellers.

The company has been investing heavily in improving the application to boost conversions and efficiency, including the adoption of AI in its platform and algorithm, badly needed with the platform suffering from declining engagement stats for years now.

Some Perspective

The pandemic provided a massive boom to the business, as sales more than doubled to $1.7 billion in the year 2020, with GAAP earnings reported at no less than $350 million, at less than $3 per share. This made a $250 stock in 2021 command very premium multiples. Valued at $35 billion, the business was valued at around 20 times sales and 100 times earnings!

Meanwhile, growth continued, albeit at a slower pace, as revenue grew to $2.3 billion in 2021 and more than $2.5 billion in 2022, with growth getting less impressive as revenues now trend around $2.8 billion each year. Net earnings have actually come down a bit in dollar terms, as margins have fallen percentage-wise, although the company has become a serial buyer of its shares lately. In fact, Etsy has reduced the outstanding share base by nearly 20% since the peak around the pandemic!

When I looked at the prospects for the shares late in 2023, the company was seeing slower growth, with revenues seen around 20% of Gross Merchandise Sales. Net debt was reported around $1.2 billion, and with growth seen down a bit, earnings support started to become more substantial, mostly because shares were down 70% from the highs around $250, with shares trading in the $70s at the time.

Continued Struggles

Since that constructive but somewhat cautious stake in 2023, shares have largely traded in a $40-$80 range, now trading right in the middle at $62 per share.

In the spring of 2024, Etsy reported a 7% increase in 2023 revenues to $2.75 billion, yet the quality of that growth was very soft, with GMS down just over a percent to $13.2 billion, indicating that the rate was rapidly on the increase. Operating profits, after adding back impairment charges, came in at $348 million, all while no convincing words about 2024 were said.

In February 2025, Etsy reported a disappointing more than 4% drop in 2024 GMS to $12.6 billion, with fourth-quarter GMS down by nearly 7%. Nonetheless, revenues rose by another 2% as the cut continues to increase, which in its turn might hurt GMS as transactions on the platform become pricier.

In fact, this seems to have been backed up by the fact that active sellers were down 10% for the year, with the number of buyers down 1%, as engagement continues to be in reverse. Operating profits of $380 million were solid, as earnings are not the main issue; that is a lack of growth, with no quick avail seen in 2025.

Following a mid-single-digit decline in comparable GMS, bigger news arrived in the fall as Kruti Patel Goyal was appointed to become the new CEO of the business. She is the successor of CEO Josh Silverman, who held the top-helmet post for over 8 years. Meanwhile, Etsy announced the divestment of its music gear marketplace, Reverb, after buying this platform just ahead of the pandemic for $275 million.

Where Do We Stand?

In October, Etsy reported third-quarter results with GMS down over 6%, but after backing out the impact of the sale of Reverb, constant currency GMS was mostly flat. Reported revenues rose just over 2%, yet outside the impact of Reverb, revenue growth was more pronounced. Similar to 2024, but to a smaller degree, the company has seen lower engagement levels in terms of fewer active buyers and sellers, yet the declines were less pronounced.

By now the 100 million shares outstanding on a basic basis represented a $6.2 billion equity valuation, excluding a $1.4 billion net debt load. The diluted share count stands near 125 million shares, that being higher factoring in convertible bonds and other dilutive securities. In a case such bonds are converted, the net debt load would be much lower, of course. This means that an enterprise valuation comes in at $7.6 billion at best and $9.2 billion at worst, and realistically somewhere in between.

This valuation stands in relation to a business generating $2.8 billion in sales, near $700 million in EBITDA, with operating profits seen near $400 million each year. Working with a 5% cost of debt and a 25% tax rate, I see realistic earnings around a quarter of a billion, for earnings of $2.50 per share at best, or perhaps a bit lower to levels around $2 per share. This makes that a $62 share price come in at 25-31 times earnings.

These are demanding valuations for a business not seeing any GMS growth, and while revenues are up, actual underlying growth and engagement levels on the platform are flat at best but likely are coming down. Meanwhile, the company continues to buy back shares, with another $750 million buyback program announced towards year-end.

These are the easy decisions to be made as the incoming CEO, Kruti Patel Goyal, is working hard to improve engagement and improve the application. These efforts are already seen in the more recent GMS trends, which show flattish results on an adjusted basis in the third quarter.

The improvements are needed as tariffs and higher costs of trade and deliveries are impacting the business case of Etsy here. Worse, some issues are self-inflicted, as third-quarter revenues have risen to nearly 25% of sales here, creating more friction for buyers and sellers to trade on the platform.

While CEO turnover and some green shoots are seen, it is a lack of top-line growth, declining engagement, and more reasonable but far from cheap valuations that make it hard for me to get involved just yet.