Etsy shares plunge 12% on weak guidance

Etsy shares slid more than 12% on Thursday afternoon, a day after the company reported better-than-expected second-quarter results but gave weak guidance for third-quarter revenue and gross merchandise sales, or GMS.

Here’s how the company did:

• Earnings: 45 cents per share, adjusted, vs. 43 cents per share, as expected by analysts, according to Refinitiv.
• Revenue: $629 million vs. $619 million as expected by analysts, according to Refinitiv.

Etsy said Wednesday that it expects third-quarter revenue to be between $610 million and $645 million, which would fall short of the $632 million analyst estimate, according to Refinitiv. GMS, which measures the total number of goods sold over a certain period, is projected to come in between $2.95 billion and $3.1 billion. At the midpoint, it fell short of the $3.04 billion expected by a survey of Refinitiv analysts.

The weak guidance overshadowed an otherwise outperforming second quarter report. The company beat expectations on the top and bottom lines, while GMS of $3 billion also came in above expectations of $2.98 billion. Services revenue, which accounts for things like advertising, was an outsized sales catalyst during the quarter, growing roughly 21% year over year.

On a call with analysts, Etsy CFO Rachel Glaser pointed to the return of student loan payments in the fall, as well as the elimination of child tax credits, as factors that could stretch consumers’ wallets and weigh on GMS in the third quarter.

CEO Josh Silverman conceded that the macro environment “remains challenging.” The online marketplace, which is known for its handmade and artisan goods, benefited enormously from sales during the pandemic, as consumers embraced digital retailers in droves. Etsy saw its revenue triple in 2020, driven largely by sales of face masks.

“Over the last few years, Etsy has gone from a period where we grew tremendously with so many tailwinds at our back, to a period of stiff headwinds and uncertain macroeconomic conditions,” Silverman said. “Consumers continue to make very tough choices on where and how to spend their money, and we’re fighting hard to help our sellers get their share.”

Even Etsy isn’t immune to the AI craze that has captivated Silicon Valley. Silverman told investors on the call that Etsy has a “small but mighty” team of AI and machine learning experts that are working to deploy these technologies “in almost every customer touchpoint,” such as tools for sellers and shopping recommendations.

“We wouldn’t want to do anything that makes the site look homogenous or boring, though,” Silverman said. “So, we’re going to be very careful about that. And more listings doesn’t necessarily translate into more sales for Etsy. So if it’s useful for sellers, we’ll lean in.”