Online marketplace Etsy(NASDAQ: ETSY) is struggling to grow in the post-pandemic world. Wells Fargo analyst Ken Gawrelski became a bit more pessimistic on Thursday, maintaining his underperform rating and dropping his price target for the stock from $62 to $60. This new price target represents a potential downside of about 8% over the next 12 months or so.
Treading water
Etsy gained customers during the pandemic as consumers shifted spending online and sought out the unique and (often) handcrafted items offered by Etsy's sellers. While Etsy has doubled the number of active buyers on its platform since 2019, growth has now ground to a halt.
Gross merchandise sales (GMS) across all of Etsy's platforms was $13.2 billion in 2023, down 1.2% year over year. The company managed to grow revenue by 7% thanks to higher fees and growth in advertising sales, but last year was the second year in a row that GMS slumped. This metric was down about 4% in 2022.
Gawrelski links the poor performance of Etsy stock so far this year to the pressure on the company's GMS, and he expects the company's guidance for the second quarter to incorporate similar trends.
Should you buy the dip?
Etsy has carved out a lucrative niche in the e-commerce market. There are few (if any) viable alternatives for those looking to sell unique, handcrafted, and bespoke items to a large audience.
However, Etsy risks following in the footsteps of eBay. Boosting fees to wring out more revenue from stagnant platform volumes isn't going to make sellers happy. eBay's gross merchandise volume has flatlined over the decade, and over the past five years, the share price performance of the e-commerce pioneer has trailed the S&P 500 by a wide margin.
Etsy has various initiatives in place to boost sales, but they've made little impact so far. While Etsy is solidly profitable, the growth story is shaky at best.
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Etsy. The Motley Fool recommends eBay and recommends the following options: short July 2024 $52.50 calls on eBay. The Motley Fool has a disclosure policy.
