Dive Brief:
- Etsy on Wednesday reported third-quarter consolidated gross merchandise sales of $3 billion, up 1.2% from a year ago. Revenue grew 7% to $636 million, up from $594 million a year ago, while net income was $88 million versus a year-ago net loss of $963 million.
- The company said growth in active buyers rose 4% in Q3 and reached a new all-time high of 92 million. And for the first time in nearly two years, U.S. active buyer trends returned to modestly positive growth, while international buyer trends stayed strong.
- Etsy offered cautious guidance for Q4, forecasting that gross merchandise sales will decline in the low-single-digit range. But it noted that metric could decline to the mid-single-digits, remain flat or even tick upward from a year ago.
Dive Insight:
CEO Josh Silverman said the current macroeconomic situation creates a “very challenging environment” for consumer spending but that the company is “holding our market share gains.”
Silverman also said this week that Etsy gained 6 million new buyers in Q3. That’s 40% above the company’s pre-COVID average for quarterly new buyer additions but down 4% year over year.
The company, which also owns musical instrument marketplace Reverb and apparel marketplace Depop, sold its Brazillian-based online marketplace, Elo7, during the quarter to Enjoei for an undisclosed amount. Etsy bought Elo7 in 2021 for $217 million.
While Etsy’s Q3 results beat top- and bottom-line expectations, “macro headwinds weighed on discretionary purchases late in the quarter driving a [gross merchandise sales] deceleration,” Wedbush analysts led by Seth Basham said in a note.
“Further, the company acknowledged competitive pressure from Chinese online retailers, Temu and Shein, that are aggressively pursuing share, driving cost per click to unsustainable levels in certain categories and certain online advertising channels, while also crowding out increasingly pressured spending on non-essential durables,” Basham said.
Silverman described Etsy as “the opposite of Temu,” according to a call transcript, and added that “the more people experience super cheap and super disposable, the more they crave something different and something better, and that's us.”
Michaels, the craft retailer, also entered the segment this week with the launch of the MakerPlace marketplace, which connects shoppers with sellers of handmade goods. Earlier this year, Michaels launched its own third-party seller marketplace. That move boosted the retailer’s SKU count to over 1.3 million.
Neil Saunders, managing director of GlobalData, said in emailed comments that Etsy’s inability “to push gross merchandise sales growth higher is mostly a function of a more constrained consumer who continues to cut back on inessential purchases. Unfortunately, the vast majority of what Etsy sells falls into the discretionary category, so it is more exposed to this weakness than many other retailers.”
Saunders also noted that Etsy’s site can seem cluttered and jumbled for shoppers. That can damage conversion rates and weaken average basket sizes. Etsy said it’s continuing to make investments that are meant to improve the shopping experience. They include improving search results, testing an AI-enabled guided search feature and building trust with sellers and buyers.
Part of the trust-based messaging includes highlighting an “on time or your money back” guarantee during the upcoming holiday season and continued enforcement of what can be sold on the Etsy marketplace. Etsy said it removed 120% more listings for violating the company’s handmade policy versus a year ago.
Saunders described Etsy’s financial outlook as “extremely cautious.”
“It is possible that Etsy is managing expectations by lowballing its forecasts, but in our view the lack of confidence from management underlines the fact that Etsy has a lot more work to do to fully optimize its proposition,” Saunders said.
