Why Etsy (ETSY) Shares Are Getting Obliterated Today

Kayode Omotosho /
2024/02/22 11:21 am EST

What Happened:

Shares of online marketplace Etsy (NASDAQ:ETSY) fell 10.5% in the pre-market session after the company reported fourth-quarter results that missed analysts' EPS estimates. While revenue came in ahead, topline growth continued to decelerate. In addition, user acquisition growth slowed, with the total number of active buyers on the platform declining year on year and falling below analysts' expectations for the quarter. Some of the headwinds observed during the quarter include: 1.) Pressure on consumer discretionary product spending, 2.) Softness in the Home & Living category 3.) Highly competitive retail environment focused on deep discounting. Overall, this was a weaker quarter for the company.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Etsy? Access our full analysis report here, it's free.

What is the market telling us:

Etsy's shares are very volatile and over the last year have had 15 moves greater than 5%. But moves this big are very rare even for Etsy and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The previous big move we wrote about was 9 days ago, when the company dropped 6.3% as yields soared and major indices fell (Nasdaq down -1.1%, S&P down -1.1%) after the Bureau of Labour Statistics reported that the consumer price index (CPI - the gauge of the price consumers pay for goods and services) for January 2024 showed a 3.1% increase from the previous year (above market expectations for a 2.9% increase), indicating inflation is not yet a solved problem. In addition, the data showed that inflation accelerated 0.3% month on month (vs. expectations for a 0.2% m/m increase). The hotter-than-expected inflation print was driven mainly by shelter prices (+0.6% m/m), which account for nearly a third of the CPI index. 

The narrative in the last year has focused on inflation and rates. Markets soared in the second half of 2023 because of data showing that inflation was coming under control. This led to expectations of multiple rate cuts in 2024. Anything going forward that defies this narrative could dent hopes of multiple rate cuts in 2024, which would in turn hurt major indices. 

As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.

Etsy is down 11.6% since the beginning of the year, and at $71.74 per share it is trading 45.5% below its 52-week high of $131.58 from February 2023. Investors who bought $1,000 worth of Etsy's shares 5 years ago would now be looking at an investment worth $1,265.

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