
Etsy (ETSY)
We’re skeptical of Etsy. Its revenue growth has been weak and its profitability has caved, showing it’s struggling to adapt.― StockStory Analyst Team
1. News
2. Summary
Why We Think Etsy Will Underperform
Founded by a struggling amateur furniture maker Robert Kalin and his two friends, Etsy (NASDAQ:ETSY) is one of the world’s largest online marketplaces, focusing on handmade or vintage items.
- Active Buyers were flat over the last two years, suggesting that increasing competition is redirecting attention to other platforms
- Forecasted revenue decline of 2% for the upcoming 12 months implies demand will fall off a cliff
- A silver lining is that its excellent EBITDA margin highlights the strength of its business model
Etsy is skating on thin ice. We’d rather invest in businesses with stronger moats.
Why There Are Better Opportunities Than Etsy
High Quality
Investable
Underperform
Why There Are Better Opportunities Than Etsy
Etsy is trading at $53.80 per share, or 7.7x forward EV/EBITDA. The current valuation may be fair, but we’re still passing on this stock due to better alternatives out there.
There are stocks out there featuring similar valuation multiples with better fundamentals. We prefer to invest in those.
3. Etsy (ETSY) Research Report: Q1 CY2025 Update
Online marketplace Etsy (NASDAQ:ETSY) announced better-than-expected revenue in Q1 CY2025, but sales were flat year on year at $651.2 million. Its GAAP loss of $0.49 per share was significantly below analysts’ consensus estimates.
Etsy (ETSY) Q1 CY2025 Highlights:
- Revenue: $651.2 million vs analyst estimates of $642 million (flat year on year, 1.4% beat)
- EPS (GAAP): -$0.49 vs analyst estimates of $0.47 (significant miss due to $101 million impairment charge)
- Adjusted EBITDA: $171.1 million vs analyst estimates of $164.2 million (26.3% margin, 4.2% beat)
- Q2 2025 guidance: year-on-year decline in GMS similar to or slightly better than Q1
- Operating Margin: -3.4%, down from 10.5% in the same quarter last year
- Free Cash Flow Margin: 7.1%, down from 35.7% in the previous quarter
- Active Buyers: 94.78 million, down 1.61 million year on year
- Market Capitalization: $4.94 billion
Company Overview
Founded by a struggling amateur furniture maker Robert Kalin and his two friends, Etsy (NASDAQ:ETSY) is one of the world’s largest online marketplaces, focusing on handmade or vintage items.
Etsy operates a two-sided online marketplace that connects tens of millions of buyers and sellers around the world with a focus on unique and creative goods that are crafted and curated by individuals or small businesses. Most of its products are in six main categories: home furnishings, jewelry, craft supplies, apparel, paper & party supplies, and beauty & personal care. The company is asset lite: it owns no warehouses, takes no inventory risk, and does not operate a supply chain network.
Etsy offers a differentiated value proposition for its sellers and its buyers. For buyers, it has created a very successful niche to find custom and curated items, from special purpose gifts to everyday items that have added meaning. For sellers, Etsy provides a large global audience for their merchandise, while also offering a range of tools and analytics to manage their online businesses.
4. Online Marketplace
Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.
Etsy (NASDAQ:ETSY) competes with a range of ecommerce companies such as Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT), Shopify (NASDAQ:SHOP), and eBay (NASDAQ:EBAY), and increasingly with social commerce companies like Pinterest (NYSE:PINS), and Meta Platforms (NASDAQ:META).
5. Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Etsy’s 6.1% annualized revenue growth over the last three years was tepid. This was below our standard for the consumer internet sector and is a tough starting point for our analysis.

This quarter, Etsy’s $651.2 million of revenue was flat year on year but beat Wall Street’s estimates by 1.4%.
Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
6. Active Buyers
Buyer Growth
As an online marketplace, Etsy generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
Etsy struggled with new customer acquisition over the last two years as its active buyers were flat at 94.78 million. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If Etsy wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products.
In Q1, Etsy’s active buyers decreased by 1.61 million, a 1.7% drop since last year. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t moving the needle for buyers yet.
Revenue Per Buyer
Average revenue per buyer (ARPB) is a critical metric to track because it measures how much the company earns in transaction fees from each buyer. ARPB also gives us unique insights into a user’s average order size and Etsy’s take rate, or "cut", on each order.
Etsy’s ARPB growth has been subpar over the last two years, averaging 2.9%. This raises questions about its platform’s health when paired with its flat active buyers. If Etsy wants to grow its buyers, it must either develop new features or lower its monetization of existing ones.
This quarter, Etsy’s ARPB clocked in at $6.87. It grew by 2.5% year on year, faster than its active buyers.
7. Gross Margin & Pricing Power
For online marketplaces like Etsy, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification.
Etsy has robust unit economics, an output of its asset-lite business model and pricing power. Its margin is better than the broader consumer internet industry and enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 71.4% gross margin over the last two years. That means Etsy only paid its providers $28.64 for every $100 in revenue.
In Q1, Etsy produced a 70.5% gross profit margin, in line with the same quarter last year. On a wider time horizon, Etsy’s full-year margin has been trending up over the past 12 months, increasing by 1.9 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs.
8. User Acquisition Efficiency
Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Etsy grow from a combination of product virality, paid advertisement, and incentives.
Etsy does a decent job acquiring new users, spending 41.7% of its gross profit on sales and marketing expenses over the last year. This decent efficiency indicates relatively solid competitive positioning, giving Etsy the freedom to invest its resources into new growth initiatives.
9. EBITDA
Investors regularly analyze operating income to understand a company’s profitability. Similarly, EBITDA is a common profitability metric for consumer internet companies because it excludes various one-time or non-cash expenses, offering a better perspective of the business’s profit potential.
Etsy has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 27.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Etsy’s EBITDA margin decreased by 1.4 percentage points over the last few years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Etsy generated an EBITDA profit margin of 26.3%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
10. Earnings Per Share
Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sadly for Etsy, its EPS declined by 22.7% annually over the last three years while its revenue grew by 6.1%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Etsy’s earnings can give us a better understanding of its performance. As we mentioned earlier, Etsy’s EBITDA margin was flat this quarter but declined by 1.4 percentage points over the last three years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
In Q1, Etsy reported EPS at negative $0.49, down from $0.47 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Etsy’s full-year EPS of $1.38 to grow 87.2%.
11. Cash Is King
Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
Etsy has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the consumer internet sector, averaging 24.7% over the last two years.
Taking a step back, we can see that Etsy’s margin expanded by 2.3 percentage points over the last few years. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Etsy’s free cash flow clocked in at $45.94 million in Q1, equivalent to a 7.1% margin. The company’s cash profitability regressed as it was 2.1 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.
12. Balance Sheet Assessment
Etsy reported $867.7 million of cash and $2.39 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $784.7 million of EBITDA over the last 12 months, we view Etsy’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $4.24 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.
13. Key Takeaways from Etsy’s Q1 Results
We enjoyed seeing Etsy beat analysts’ revenue and EBITDA expectations this quarter. Guidance seemed relatively in line with expectations, considered a positive amid the uncertain macro. Overall, this quarter had some key positives. The stock traded up 8.9% to $50.25 immediately after reporting.
14. Is Now The Time To Buy Etsy?
Updated: July 9, 2025 at 10:14 PM EDT
The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Etsy.
Etsy isn’t a terrible business, but it doesn’t pass our quality test. To kick things off, its revenue growth was uninspiring over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its impressive EBITDA margins show it has a highly efficient business model, the downside is its active buyers were flat. On top of that, its disappointing EPS growth over the last three years shows it’s failed to produce meaningful profits for shareholders.
Etsy’s EV/EBITDA ratio based on the next 12 months is 7.7x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.
Wall Street analysts have a consensus one-year price target of $52.50 on the company (compared to the current share price of $53.80).