Etsy Stock Downgraded as Shoppers Cut Spending

Etsy’s stock has dropped following analyst concerns about decreased spending on the site.

The investment bank Jefferies issued a “rare double downgrade” for the eCommerce company, Yahoo Finance reported Thursday (March 9), switching Etsy’s stock from the “buy” to “underperform” category.

“Buyers are churning faster and spending less on Etsy, forcing marketing higher and putting pressure on [operating profits],” said Jefferies analyst John Colantuoni. “With more limited take rate upside and deteriorating buyer trends, we see downside to consensus from slowing top line and moderating margin expansion.”

PYMNTS has reached out to Etsy for comment but has not yet received a reply.

The company last month reported what it called record revenues, which were up 12.6% for the closing quarter, driven in part by the holiday season.

Etsy has been investing in efforts to keep users on its site. Last year, it worked to reactivate 24 million “lapsed” buyers, the most ever in a single year, management said on the company’s most recent earnings call.

It also made investments to streamline its search feature, with CEO Josh Silverman saying Etsy had made some significant progress on that front.

“For example, search results are now getting good enough that we could put a Buy button right on search results and allow people to buy directly from search results without having to go all the way to the listing page,” Silverman said during the call.

At the same time, consumers are finding themselves increasingly pinched, which means prioritizing necessities over, for example, the handmade and vintage items sold by Etsy.

While the number of consumers living paycheck to paycheck has come down somewhat since the holiday season, people still feel strapped.

As research by PYMNTS has shown, the annualized cost of everyday essentials — i.e., shelter, food and clothing — has risen 19.8% since before the pandemic, as measured in the fourth quarter of 2022 compared to the same period in 2019. Drilling down a bit, we found that spending on shelter went up 17% through the same timeframe, and food has soared 25%.

“Disposable income — the net amount in the household budget after taxes — bears the brunt of inflation,” PYMNTS wrote last month.

“Our research shows that the cost of essentials as a share of disposable income comes to 22.4%. And that’s with the ‘substitution effect’ that’s already been seen as consumers seek to cut costs by ‘trading down’ to less-expensive items or even pulling back altogether.”

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