Online marketplace Etsy (NASDAQ:ETSY) reported Q1 CY2025 results beating Wall Street’s revenue expectations, but sales were flat year on year at $651.2 million. Its non-GAAP profit of $0.83 per share was 18.3% below analysts’ consensus estimates.
Is now the time to buy ETSY? Find out in our full research report (it’s free).
Etsy (ETSY) Q1 CY2025 Highlights:
- Revenue: $651.2 million vs analyst estimates of $642 million (flat year on year, 1.4% beat)
- Adjusted EPS: $0.83 vs analyst expectations of $1.01 (18.3% miss)
- Adjusted EBITDA: $171.1 million vs analyst estimates of $164.2 million (26.3% margin, 4.2% beat)
- Operating Margin: -3.4%, down from 10.5% in the same quarter last year
- Free Cash Flow Margin: 5.4%, down from 35.7% in the previous quarter
- Active Buyers: 94.78 million, down 1.61 million year on year
- Market Capitalization: $4.88 billion
StockStory’s Take
Etsy’s first quarter results for 2025 reflected the company’s ongoing navigation through a complex consumer and macroeconomic environment. Management highlighted continued investments in product innovation, notably around artificial intelligence-driven personalization and improvements to the mobile app experience. CEO Josh Silverman pointed to the app’s growing share of total marketplace sales and described recent product launches—such as curated, browsable shopping experiences—as early steps toward reigniting buyer engagement.
Looking ahead, leadership expressed cautious optimism that stacking these product and marketing initiatives will gradually improve growth as the year progresses. However, management acknowledged that ongoing macroeconomic challenges and tariff uncertainties could weigh on consumer discretionary spending. CFO Lanny Baker noted that while marketing investments are increasing, especially in paid social channels, expected margin pressures will persist, and buyer frequency remains a key focus area for improvement.
Key Insights from Management’s Remarks
Etsy’s leadership detailed several operational and strategic developments that shaped Q1 performance. Management attributed the quarter’s outcomes to a mix of product innovation, evolving marketing strategies, and targeted marketplace adjustments:
-
AI-powered personalization emphasis: The company continued rolling out advanced artificial intelligence (AI) and machine learning features to deliver more tailored shopping experiences. CEO Josh Silverman stated that new “algatorial curation”—a combination of algorithmic and editorial input—has made the site more browsable and is expected to drive higher customer engagement.
-
Mobile app momentum: The mobile app reached a record 44.5% of total gross merchandise sales (GMS), with year-over-year increases in monthly active users and first-time downloads. Management views the app as a core driver of future growth, as it gathers richer customer data and enables more effective personalization.
-
Seller base quality improvements: Etsy introduced a $29 shop setup fee in the U.S. to encourage serious sellers, resulting in higher seller retention and a greater share of new sellers making sales. Silverman emphasized that this was an intentional move to improve overall marketplace health, not a response to declining demand.
-
Marketing channel shift: Marketing spend shifted further toward paid social media, with a focus on performance and mid-funnel initiatives. The company reported meaningful gains in efficiency and engagement from these channels, even as returns lag those from search advertising.
-
Tariff and trade lane resilience: Management addressed the fluid global tariff landscape, noting Etsy’s relatively limited direct exposure to U.S.-China imports. The majority of marketplace sales are local transactions, which could position Etsy favorably if tariffs disrupt global supply chains. Leadership established a task force to monitor and respond to evolving regulatory risks.
Drivers of Future Performance
Management’s outlook for the coming quarters centers on the gradual compounding of recent product, marketing, and operational investments, with external macroeconomic and regulatory factors remaining significant variables.
-
Product innovation stacking: Leadership believes that continued rollouts of AI-driven personalization, improved app features, and enhanced discovery experiences will collectively drive higher buyer engagement and frequency over time.
-
Buyer reactivation focus: Reactivating lapsed buyers and increasing purchase frequency are top priorities. The company is testing new loyalty initiatives and personalized marketing strategies, with early signs that these efforts can boost long-term customer value.
-
External headwinds: Management cited ongoing macroeconomic uncertainty and potential tariff changes as key risks. They acknowledged that higher tariffs on competitors could improve Etsy’s relative value proposition, but broader consumer spending softness remains a concern.
Top Analyst Questions
-
Shweta Khajuria (Wolfe Research): Asked about the path to improved growth and the impact of increased marketing spend in social channels. Management stated progress in social marketing performance and buyer reactivation but reiterated that macroeconomic conditions remain a challenge.
-
Bryan Smilek (JPMorgan): Inquired about the future roadmap for the mobile app and its potential to drive higher gross merchandise sales. CEO Josh Silverman described ongoing efforts to make the app experience more personalized and browsable, aiming to position it as a primary shopping channel.
-
Nikhil Devnani (Bernstein): Questioned whether the decline in active sellers is affecting buyer metrics and marketplace network effects. Silverman replied that intentional friction from the new seller fee has improved seller quality, not contributed to buyer declines, attributing lower buyer numbers mainly to macro factors.
-
Michael Morton (MoffettNathanson): Asked about the impact of increased cloud and shipping costs on gross margin. CFO Lanny Baker explained that higher machine learning and loyalty program costs were expected and are part of ongoing investments in customer experience.
-
Ygal Arounian (Citi): Sought clarity on the implications of changes to de minimis tariff exemptions and the potential impact of AI-powered shopping agents. Silverman indicated Etsy’s limited exposure to direct China imports and discussed opportunities for Etsy’s differentiated inventory in a world shaped by agentic shopping.
Catalysts in Upcoming Quarters
Looking forward, the StockStory team will be tracking (1) the effectiveness of AI-driven personalization and app-based engagement in reversing buyer and GMS declines, (2) the pace at which new loyalty and retention initiatives impact purchase frequency, and (3) Etsy’s ability to navigate potential changes in global tariffs and trade regulations. The successful execution of ongoing marketing channel shifts and the company’s response to external consumer headwinds will also be critical signposts for Etsy’s near-term trajectory.
Etsy currently trades at a forward EV/EBITDA ratio of 6.6×. At this valuation, is it a buy or sell post earnings? See for yourself in our free research report.
Stocks That Trumped Tariffs in 2018
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.