Etsy(NASDAQ: ETSY) stock trailed the market by a wide margin this week, falling 14% through Thursday trading according to data provided by S&P Global Market Intelligence. That's compared to a 1% decline in the S&P 500. The e-commerce retailer's performance is even worse once you zoom out. Shares are down nearly 30% in 2024 and have slumped by almost 40% in the past full year.
This week's decline was sparked by Etsy's first-quarter earnings update, which wasn't well received on Wall Street.
Still shrinking
Etsy handled $3 billion of transactions in the selling period that ran through late March. That figure translated into a 4% decline, marking a deceleration compared to the prior quarter's 2% drop. In other words, Etsy's growth rate hasn't yet stabilized after sitting in negative territory for the past two full years.
Management said the challenge stemmed from weak consumer demand for its category of discretionary purchases. "Our first quarter performance ... was pressured by the challenging environment for consumer discretionary products," CEO Josh Silverman said in a press release.
There were other signs of soft demand, too. Etsy's buyer pool rose by less than 2% from a year ago and was flat compared to the prior quarter. Most of those gains came from areas outside of the U.S., too, management said.
The good news is that Etsy remains profitable, although net profit margin fell to 10% of sales from 12% of sales a year ago.
Looking ahead
Investors are bracing for a continued tough operating environment through the rest of 2024. Etsy executives said they're expecting to see a modest acceleration in sales growth in the second half of the year. However, sales volumes are likely to remain negative in the second quarter, falling by about the same 4% rate that shareholders saw in Q1.
Etsy is focusing on cutting costs and on improving the shopping and selling experiences. These efforts should pay off over time, likely boosting profitability and sales. But the e-commerce stock will likely remain under pressure until the company starts growing its merchandise volumes again.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Etsy. The Motley Fool has a disclosure policy.
