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ETSY Stock Tanks 13% on Weak Guidance and Forecast for Q3 2023
Shares of American e-commerce company Etsy Inc (NASDAQ: ETSY) tanked by 13.69% on Thursday, August 3, soon after the company reported better-than-expected numbers for the second quarter ending June. Well, the Etsy stock price tanked due to the company’s weak guidance for Q3 revenue as well as gross-merchandise sales. For Q2, Etsy reported earnings at 45 cents per share against the expected 43 cents per share. Also, the revenue for the company stood at $629 million against the expected $619 million.
Factors that Influence Etsy Stock
On Wednesday, Etsy announced that it predicts third-quarter revenue to be in the range of $610 million to $645 million. This estimate falls below the analyst consensus of $632 million according to Refinitiv. The projected GMS, which measures the total value of goods sold over a specific period, is expected to be between $2.95 billion and $3.1 billion. However, at the midpoint, it is slightly below the Refinitiv analysts’ survey expectation of $3.04 billion.
Despite an otherwise strong performance in the second quarter, the company’s weak guidance for the future was the main focus. The company exceeded expectations in both revenue and profits for the quarter. The GMS (total value of goods sold) amounted to $3 billion, surpassing the expected $2.98 billion. Additionally, services revenue, which includes things like advertising, played a significant role in boosting sales during the quarter, growing by approximately 21% compared to the previous year.
Macro Environment Remains Challenging
CEO Josh Silverman acknowledged that the overall economic conditions are still difficult. Etsy, an online marketplace famous for its handmade and artisan products, experienced significant growth in sales during the pandemic as many people turned to online shopping. In 2020, the company’s revenue tripled, largely due to the high demand for face masks. Explaining these shifts, Silverman said:
“Over the last few years, Etsy has gone from a period where we grew tremendously with so many tailwinds at our back, to a period of stiff headwinds and uncertain macroeconomic conditions. Consumers continue to make very tough choices on where and how to spend their money, and we’re fighting hard to help our sellers get their share.”
Amid the ongoing AI craze in Silicon Valley, Etsy is working on similar developments to leverage the power of AI. During the investor call, Silverman mentioned that Etsy has a “small but mighty” team of AI and machine learning experts. They are actively working on implementing these technologies across various customer interactions, including tools for sellers and shopping recommendations. He added:
“We wouldn’t want to do anything that makes the site look homogenous or boring, though. So, we’re going to be very careful about that. And more listings don’t necessarily translate into more sales for Etsy. So if it’s useful for sellers, we’ll lean in.”
Etsy CFO Rachel Glaser is bullish about the elimination of student loan payments in the fall. He said that these factors could help stretch the consumer wallets and weight on the company’s GMS in the third quarter.
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ETSY Stock Tanks 13% on Weak Guidance and Forecast for Q3 2023
