Etsy Earnings: Challenging Quarter as Value-Seeking Buyers Make Life Tough in Craft Segment

We remain constructive on wide-moat Etsy's long-term prospects and believe that the firm's operational initiatives position it well to emerge stronger from this period of macroeconomic turbulence. Nevertheless, CEO Josh Silverman explained it well during management's call with investors, conceding that almost everyone is losing share to Amazon, Walmart, Shein, and Temu in the e-commerce segment. Sluggish home and living sales (35% of gross merchandise volume), rising marketing costs amid a torrent of irrational spending by Asian marketplace competitors, and a clear preference for deep discounting in a challenging environment continue to depress Etsy's core operating metrics and investors. As we digest another quarterly GMV decline—down 0.7% annually—and guidance for a similarly tepid first-quarter 2024, we expect to lower our $145 fair value estimate by a mid-single-digit percentage. Shares continue to look very cheap, particularly after a similar stock price decline following the release for fourth-quarter 2023.