Like much of its industry, Etsy (NASDAQ:ETSY) have a bad day. The craft products market recently released its first quarter 2022 results and disappointed investors with weak forecasts. Today, ETSY stock is in decline as investors react to the company’s bleak future projections. Some pundits have raised concerns about the platform’s sellers strike over the fee increase. However, macroeconomic headwinds may do more to drag the stock down as the industry landscape changes.
What’s going on with ETSY Stock
ETSY stock has plummeted since the recent earnings call. One of the biggest losers before market this morning, he saw his shares fall 11% before trading began. Since the opening of the markets, things have gone from bad to worse. Shares are down 17% for the day at the time of writing. ETSY’s performance places it just below its competitor Shopify (NYSE:STORE), which rebounded slightly after falling this morning.
The entire e-commerce industry is fighting an uphill battle, but there are several factors to consider when evaluating ETSY stock. Let’s break it down in detail.
why is it important
Etsy, Shopify and all of their e-commerce competitors were boosted by the initial Covid-19 outbreak. Now that in-person shopping has resumed, fewer consumers are willing to spend time and money browsing through old digital favorites. While Etsy and eBay posted better-than-expected earnings, both companies also released weak guidance for the current quarter.
Etsy’s forecast is that revenues will be between $540 million and $590 million, down from the $627 million forecast by Wall Street. This, combined with Shopify’s weak earnings report, shows that the industry is clearly losing the momentum that spurred it to impressive growth in 2020.
“In the current macroeconomic environment, consumers have less disposable income and many more places to spend it, and while this creates a short-term headwind for sales in our marketplaces,” noted Rachel Glaser , chief financial officer of Etsy. She added, however, that her team sees long-term growth potential for the company.
As macro trends worked against it, Etsy tried to stay afloat by raising fees for sellers. Although this new policy caused an outcry from users, experts did not expect it to lower ETSY’s stock. And according to CEO Josh Silverman, those predictions were correct. He noted on the earnings call that less than 1% of Etsy merchants closed their digital shops, which had “no significant impact on churn rates.”
The sellers’ strike may not have posed a significant threat to ETSY stocks, but investors will certainly be cautious heading into the next quarter. Although Glaser and Silverman are both optimistic, the question remains how long it will be before these long-term growth projections materialize.
What this means
As Silverman also said on Etsy’s earnings call, the company is emerging from a period of unprecedented growth. This is true for the entire e-commerce industry. Amazon (NASDAQ:AMZN) recently fell after reporting questionable earnings and when an industry giant falters, it shakes confidence across the sector. However, that doesn’t necessarily mean that smaller competitors aren’t worthwhile play.
Etsy is likely to have a less than successful quarter, as recent forecasts indicate. It’s just as likely, however, that it will be temporary and that ETSY’s stock will recover as its executives predict. This may be the downside buying opportunity that investors have been looking for. ETSY stock is definitely a name to watch closely, even if its struggles persist.
At the date of publication, Samuel O’Brient held (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.