We came across a bearish thesis on Etsy, Inc. (ETSY) on The Finance Corner’s Substack by Kostadin Ristovski, ACCA. In this article, we will summarize the bears’ thesis on ETSY. Etsy, Inc. (ETSY)’s share was trading at $51.99 as of Nov 21st. ETSY’s trailing and forward P/E were 26.53 and 13.59 respectively according to Yahoo Finance.
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Etsy, once a niche leader in handmade and vintage goods, now faces significant challenges threatening its position in e-commerce. While its marketplace concept connecting buyers and sellers of unique items remains compelling, the company is grappling with stagnant growth and strategic missteps that could drive it into a dangerous spiral. Etsy’s Gross Merchandise Sales (GMS) surged during the pandemic but have since declined, reflecting either reduced demand or insufficient supply. The number of active sellers has grown, but active buyers have stagnated, creating an imbalance that pressures pricing and erodes value.
This issue is compounded by the influx of low-quality, AI-generated products and dropshipping listings, diminishing Etsy’s appeal to its core audience. As high-value sellers lose traction and exit the platform, buyers disappointed by subpar offerings are increasingly abandoning Etsy. This dynamic is evident in declining GMS retention rates, a troubling signal for long-term viability. To counteract this, Etsy has resorted to heavy marketing expenditures, dedicating 30% of revenue—approximately $700–800 million annually—just to maintain flat revenues. This unsustainable approach highlights the company’s struggle to retain buyers amidst growing dissatisfaction.
Etsy has also leaned on increasing its take-rate, now at 21%, double its rate from a decade ago and significantly higher than competitors like eBay. While this strategy boosts short-term revenue, it risks alienating sellers, particularly those offering high-value products, further exacerbating the platform’s spiral. Compounding these issues are management’s poor acquisition decisions. Costly purchases like Depop for $1.5 billion—despite its modest $70 million annual revenue—resulted in over $1 billion in impairment charges for Depop and Elo7, with the latter eventually sold at a loss. These moves not only destroyed shareholder value but also undermined confidence in Etsy’s strategic direction.
Despite impressive gross margins of ~70%, Etsy’s reliance on aggressive marketing spend limits its operating margin improvements. Revenue growth appears unlikely to outpace inflation, given stagnant buyer numbers and the continued prevalence of low-value products. A discounted cash flow analysis suggests a fair value of $29 per share, far below the current market cap of $51 per share. For Etsy to justify its valuation, it must reduce low-value listings, reignite buyer growth, sustain take-rate increases without alienating sellers, and avoid further mismanagement. Without meaningful changes, Etsy risks losing its unique identity and long-term relevance in a highly competitive e-commerce landscape.
Etsy, Inc. (ETSY) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 45 hedge fund portfolios held ETSY at the end of the third quarter which was 36 in the previous quarter. While we acknowledge the risk and potential of ETSY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ETSY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.