What Happened:
Shares of online marketplace Etsy (NASDAQ:ETSY) fell 5.5% in the afternoon session after the company announced a restructuring plan on December 12, 2023, to enhance operational efficiencies, reduce costs, and align its workforce with business priorities. The plan includes an 11% reduction in the marketplace workforce, approximately 225 employees, with estimated charges of $25-30 million expected to be incurred primarily in the fourth quarter of 2023. Additionally, Chief Marketing Officer Ryan Scott and Chief Human Resources Officer Kimaria Seymour will be leaving the company by December 31, 2023.
The CEO added "We are operating in a very challenging macro and competitive environment, and [gross merchandise sales] has remained essentially flat since 2021," the letter reads. "This means we are not bringing our sellers more sales, which is the single most important thing we can do for them. At the same time, employee expenses have grown, even as we have introduced significant cost-cutting measures and adjusted or paused hiring plans. This is ultimately not a sustainable trajectory and we must change it."
Looking ahead, Etsy updated its fourth-quarter guidance, expecting an adjusted EBITDA margin between 27% and 28%, up from the prior range of 26% to 27%. Despite anticipating a GMS decline of approximately (2)% to (1)% in line with previous guidance, revenue is projected to increase by approximately 2% to 3%.
This decision underscores that just because a platform is digital doesn't mean that it's doing well. Brick-and-mortar retailers are struggling for obvious reasons related to consumer preferences and digitization trends, but Etsy's struggles seem to come as a bigger shock. There are clearly some fundamental questions about the business model, the value it provides to buyers and sellers, and what the multi-year outlook is for its role in commerce.
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 21 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 7 months ago, when the stock dropped 8.6% on the news that the company reported first-quarter results that exceeded analysts' gross merchandise sales, revenue, and earnings per share (EPS) expectations. Buyer growth was also strong and above consensus, with management seeing "positive trends in our first quarter 2023 buyer data, particularly the return to year-over-year growth in the Etsy marketplace's active buyer base". One negative is that free cash flow in the quarter missed. Additionally, gross merchandise sales guidance for next quarter was roughly in line while revenue guidance was below Consensus. Overall, it was a mixed quarter with management highlighting an uncertain macro.
Etsy is down 28.3% since the beginning of the year, and at $81.44 per share it is trading 45% below its 52-week high of $148.20 from February 2023. Investors who bought $1,000 worth of Etsy's shares 5 years ago would now be looking at an investment worth $1,479.
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