Editor’s note: This article was republished on May 5 with a different headline.
Like much of its sector, Etsy (NASDAQ:ETSY) is having a down day. The handmade goods marketplace recently reported 2022 Q1 earnings and disappointed investors with weak guidance. Today, ETSY stock is in decline as investors react to the company’s grim future projections. Some experts cited concerns regarding the platform’s seller strike following fee increases. However, macroeconomic headwinds may be doing more to push the stock down as the industry landscape shifts.
What’s Happening With ETSY Stock
ETSY stock has been in free fall since the recent earnings call. One of this morning’s biggest pre-market losers, it saw shares fall 11% before trading began. Since markets opened, things have gone from bad to worse. Shares are down 17% for the day at the time of writing. ETSY’s performance puts it just below its competitor Shopify (NYSE:SHOP), which has rebounded slightly after falling this morning.
The entire e-commerce sector is fighting an uphill battle, but there are several factors to consider when evaluating ETSY stock. Let’s break it down in detail.
Why It Matters
Etsy, Shopify and all their e-commerce competitors were boosted by the initial Covid-19 outbreak. Now that in-person shopping has resumed, fewer consumers are inclined to spend time and money browsing their former digital favorites. While both Etsy and eBay posted better-than-expected earnings, both companies also issued weak guidance for the current quarter.
Etsy’s prediction is that revenue will range between $540 million and $590 million, down from the $627 million predicted by Wall Street. That, combined with Shopify’s poor earnings report, shows that the sector is clearly losing the momentum that spurred it to impressive growth in 2020.
“In the current macroeconomic environment, consumers have less disposable income and many more places to spend it, and while this creates a short-term headwind for sales on our marketplaces,” noted Etsy CFO Rachel Glaser. She added, though, that her team sees long-term growth potential ahead for the company.
While macroeconomic trends have been working against it, Etsy has tried to stay afloat by raising fees for sellers. While this new policy sparked an outcry from users, experts did not expect it to push down ETSY stock. And according to CEO Josh Silverman, these predicts were correct. He noted on the earnings call that less than 1% of Etsy merchants closed their digital shops, resulting in “no material impact to churn rates.”
The seller strike may not have posed a significant threat to ETSY stock, but investors will certainly be cautious heading into the next quarter. While Glaser and Silverman are both optimistic, the question remains as to how long it will be before these long-term growth projections kick in.
What It Means
As Silverman also stated on the Etsy earnings call, the company is coming out of times of unprecedented growth. That’s true for the entire e-commerce sector. Amazon (NASDAQ:AMZN) recently dipped after reporting questionable earnings and when an industry giant falters, it shakes confidence in the entire sector. However, that doesn’t necessarily mean that smaller competitors are not a worthwhile play.
It’s likely that Etsy is in for a less-than-prosperous quarter, as indicated by the recent guidance. It is equally probable, though, that it will be temporary and ETSY stock will recover as its leaders predict. This may be the buy-the-dip opportunity that investors have been looking for. ETSY stock is definitely a name to watch closely, even if its struggles persist.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.