Etsy (NASDAQ: ETSY) stock plummeted in the pre-market trading Thursday after the e-commerce marketplace company issued a gloomy first-quarter guidance amid sluggish discretionary spending.
Etsy (ETSY) cautioned about a possible decline in first-quarter gross merchandise sales (GMS) due to subdued demand for handcrafted items and personalized gifts sold through its online marketplace. This warning follows the revelation of fourth-quarter GMS figures that fell short of market expectations, signaling potential challenges ahead for the company.
The fourth-quarter results revealed a 0.7% decrease in consolidated gross merchandise sales, amounting to $4 billion, notably lower than analysts’ projections. According to LSEG data, analysts had anticipated a 1.3% rise to $4.09 billion.
Etsy attributes the projected decline in first-quarter GMS to a broader trend of reduced consumer spending on non-essential goods in the United States. Economic constraints, including tightened disposable incomes, have led consumers to prioritize essential purchases, resulting in a challenging environment for discretionary spending.
Margin Decline in Q4
Etsy confronts heightened competition from retailers leveraging deeper discounts and promotions to lure bargain-seeking consumers. This intensified competition has forced Etsy to focus on supporting its sellers with marketing initiatives and experimenting with promotions across its platform to attract more buyers. However, these efforts have impacted the company’s margins in the fourth quarter, which declined by 370 basis points to 9.9%. Etsy reported a net income margin of 13.8% in the previous quarter.
The company is pursuing cost reduction measures, including recent workforce adjustments, to mitigate the impact of softening demand for crafts supplies and home decor items, which have failed to capitalize on the pandemic-driven surge.
Etsy’s revenue for the holiday quarter increased by 4.3% to $842.3 million, surpassing analysts’ forecasts of $827.8 million. The company reported that GMS grew by 4% year-over-year during the crucial Cyber Week shopping period last year.
Rachel Wolff, an analyst at Insider Intelligence, characterized the results as mixed. She suggested that Etsy struggled to keep up with larger e-commerce competitors while dealing with “intense competition” from budget-friendly competitors like Temu.
Etsy (NASDAQ: ETSY) Stock Movement
ETSY stock tumbled 11.40% in the pre-market trading on Thursday after closing the regular trade at $77.13 on Wednesday. The traders had exchanged hands with 6,156,232 (6.15 million) shares compared to the average daily trading volume of 4.27 million.
