Etsy (ETSY 1.07%)a market known for its unique and creative products, announced its third quarter 2024 results on October 30, 2024. The company’s earnings per share (EPS) of $0.45 fell short of analysts’ forecasts of $0.53, while revenue increased 4.1% to $662.4. million compared to the same period last year. Although revenue figures showed resilience, gross merchandise sales (GMS) fell to $2.9 billion, indicating challenges in the discretionary goods market. Net profit decreased by 34.7% due to increased operating expenses, reflecting the impact of macroeconomic factors. Overall, Etsy’s quarter saw positive revenue growth amid earnings pressure.

Source: Analyst estimates for the quarter provided by FactSet.

Understanding Etsy’s business model

Etsy operates as a global online marketplace specializing in handmade, vintage, and unique factory-made items. It serves as a platform for individual sellers to sell directly to consumers. One of the core elements of Etsy is allowing artisans to reach a global audience.

Lately, Etsy has focused on improving its e-commerce platform to stay competitive. Technology investments have been crucial, particularly in search and discovery capabilities. It leverages artificial intelligence (AI) and advanced algorithms to improve user experience and ensure relevant search results.

Quarterly outlook and challenges

During the quarter, Etsy faced notable financial changes, with GMS falling to $2.9 billion. This is a decrease of 4.1% from the previous year, accentuating challenges within the discretionary goods market. Contributing factors include global sales momentum and weaker demand for non-essential goods. Operating expenses increased from $358.9 million to $390.0 million, emphasizing profitability.

A strategic priority has been placed on improving the shopping experience through technological advancements and loyalty programs. The Etsy Insider Program, a beta loyalty initiative, aims to improve customer retention through benefits such as free shipping. This complements Etsy’s marketing efforts on channels like paid social, where spending has increased to drive growth.

The company has adjusted EBITDAa key performance indicator that reflects operating profitability without taking into account interest, taxes, depreciation and amortization, reached $183.6 million. This shows slight operational efficiencies against a backdrop of increasing costs. Etsy notably approved $1 billion worth of stock buybacks, a sign of confidence in its strategic direction despite immediate financial pressures.

When it comes to marketing initiatives, the 22% increase in marketing spend highlights Etsy’s commitment to tackling a challenging market. Additionally, Etsy continues to expand across its six core geographies, which now represent an even split between U.S. and international sales, expanding its reach to new buyers.

Future outlook and strategic direction

Etsy management recognizes the potential challenges ahead, anticipating a low single-digit percentage decline in GMS for the fourth quarter of 2024. It nevertheless intends to maintain its adjusted EBITDA margin around 28% to 29%. , which means efforts to balance growth and profitability.

Looking ahead, Etsy’s strategies focus on user engagement through technology and platform improvements. This involves refining the search experience using AI to maintain strong customer engagement and diversify revenue streams. Investors should view Etsy’s efforts to increase purchase frequency and improve new customer acquisition as key metrics for assessing future performance.