Shares of online marketplace Etsy (NASDAQ:ETSY) jumped 5.9% in the afternoon session after the stock rebounded following a steep sell-off in the previous week. Etsy announced on December 13th, 2023, that it is cutting 11% of its workforce, or approximately 225 employees, as the company looks to restructure its business and streamline costs against a "very challenging" macro and competitive environment. This move marks a shift from the negative sentiment in the previous week, and there haven't been any further updates on the situation. This week, investors may be coming around to seeing the benefits of such a restructuring.
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What is the market telling us:
Etsy's shares are not very volatile than the market average and over the last year have had only 21 moves greater than 5%.
The previous big move we wrote about was 5 days ago, when the stock dropped 5.5% on the news that the company announced a restructuring plan on December 13th, 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.
Etsy is down 24.8% since the beginning of the year, and at $85.43 per share it is trading 42.4% 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 $1,647.
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