As global economic conditions continue to deteriorate, many are wondering how Etsy, the renowned handmade goods marketplace, is faring. The recently released third-quarter financial report provides some answers while revealing challenges sellers must confront.
Etsy Q3 Report: Steady Revenue With Slowing Growth
On November 2, Etsy released its third-quarter results showing $2.6 billion in total platform revenue, a modest 3.8% year-over-year decline. When adjusted for foreign exchange fluctuations, revenue actually grew by 0.2%. The company's combined marketplace revenue reached $3 billion, down 3.3% from last year but showing 0.7% growth on a currency-neutral basis.
Etsy cited multiple macroeconomic challenges including post-pandemic consumer behavior shifts, reduced discretionary spending, foreign exchange volatility, and geopolitical tensions as factors impacting Gross Merchandise Sales (GMS) performance. Given these conditions, the company considers its results relatively strong.
Key Findings: Mixed Signals in the Data
A deeper analysis reveals both promising indicators and concerning trends:
- GMS Decline Remains Above Pre-Pandemic Levels: Combined GMS of $3 billion represents a 3.3% year-over-year decrease but shows 0.7% growth when adjusted for currency. The core Etsy marketplace's $2.6 billion GMS represents a 134% increase compared to Q3 2019, demonstrating sustained platform activity despite slowing growth.
- New Buyer Acquisition and International Growth: The marketplace attracted approximately 6 million new buyers, maintaining significantly higher acquisition rates than pre-pandemic periods. Non-U.S. GMS accounted for 44% of total volume, with 9% year-over-year growth on a currency-neutral basis, indicating strong international potential.
- Revenue Growth With Profit Pressure: Combined revenue reached $594.5 million, an 11.7% increase from Q3 2021, with a take rate of 19.8%. However, the company reported a $963.1 million net loss primarily due to $1 billion in goodwill impairment charges for Depop and Elo7 acquisitions. The Non-GAAP adjusted EBITDA margin declined 500 basis points to 28%.
- Strong Cash Position and Share Buybacks: Etsy ended the quarter with $1.1 billion in cash and investments, while repurchasing $151 million worth of shares under its buyback program, signaling confidence in its financial stability.
The Seller Perspective: Growth at What Cost?
Etsy's April transaction fee increase contributed to revenue growth, with sellers effectively paying more for fewer sales. Advertising services also drove revenue, as Etsy Ads became an increasingly important tool for seller visibility - meaning merchants must invest more in promotion to maintain sales.
Strategic Responses and Future Outlook
Etsy's CEO emphasized the platform's resilience in challenging markets while outlining several strategic initiatives:
- Enhancing user experience through improved search functionality, personalized recommendations, and customer service
- Expanding international presence through localized operations and marketing
- Developing new seller tools to improve operational efficiency and profitability
- Exploring innovative business models like Etsy Studio and Etsy Wholesale
Recommendations for Sellers
As platform growth comes with increased competition and potential margin compression, sellers should consider:
- Focusing on product quality and distinctive designs
- Providing exceptional customer service
- Implementing strategic marketing through Etsy Ads
- Controlling operational costs
- Diversifying sales channels beyond Etsy
The coming quarters will test Etsy's ability to balance growth with seller profitability amid ongoing economic uncertainty. Both the platform and its merchants will need to adapt strategically to maintain their positions in the evolving e-commerce landscape.