What They Do
Etsy operates a global marketplace connecting buyers with sellers of unique, handmade, vintage, and creative goods. The company monetizes through transaction fees, payment processing, advertising services, and seller tools, primarily serving consumers seeking personalized and distinctive items that can't be found in traditional retail. With 86.5 million active buyers and a mobile app driving 46% of gross merchandise sales, Etsy facilitates billions in commerce between creative entrepreneurs and their customers.
Investment Thesis
**Margin expansion story**: 71.6% gross margins with take rate climbing 170 basis points to 24.5% year-over-year, demonstrating pricing power and value-added services adoption**Return to growth inflection**: First positive marketplace GMS growth (0.1%) since Q3 2023, with management guiding to "slight growth" in 2026 after years of decline**Capital allocation focus**: $1.2 billion Depop sale provides massive cash influx while allowing singular focus on the core marketplace with superior unit economicsKey Risks
**Buyer base erosion**: Active buyers down 3% year-over-year and habitual buyers declined 8.6%, indicating ongoing customer retention challenges**Growth deceleration**: Revenue growth projected to turn negative (-4.8%) in 2026 despite marketplace stabilization, suggesting limited scalability**Macro sensitivity**: Platform heavily exposed to discretionary spending on non-essential goods during economic uncertaintyGrowth Story
Etsy is emerging from a multi-year decline with Q4 marking the first positive GMS growth since 2023. Revenue has stabilized around $2.8 billion with management targeting slight growth in 2026 after improving from -6% GMS growth in 2024 to -4% in 2025. The growth is being driven by mobile app engagement (6.6% GMS growth acceleration), improved buyer acquisition metrics (17.2 million gross additions), and emerging agentic commerce initiatives growing 15x year-over-year.
Profitability Profile
Etsy demonstrates strong unit economics with 71.6% gross margins and marketplace-level adjusted EBITDA margins slightly above 30%. The company generated $735 million in adjusted EBITDA in 2025, converting an impressive 87% to free cash flow. With marketing showing leverage and take rates expanding, Etsy is well-positioned for margin expansion as growth stabilizes, particularly after divesting lower-margin businesses like Depop.
Competitive Position
Etsy maintains a differentiated position in the e-commerce landscape by focusing exclusively on unique, handmade, and vintage items that create an emotional connection between buyers and sellers. Unlike Amazon or eBay, Etsy's human-centered marketplace emphasizes creativity and personalization, creating natural barriers to commoditization. The company's investments in machine learning for buyer-item matching and agentic commerce partnerships with Microsoft and Google reinforce its positioning as the go-to platform for distinctive goods.
Recent Momentum
Q4 2025 marked a significant inflection point with the first positive marketplace GMS growth in over a year and a massive revenue beat of 37.8%. The announced $1.2 billion Depop sale to eBay demonstrates management's commitment to focusing resources on the core marketplace opportunity. Mobile app momentum accelerated with 6.6% GMS growth, while buyer acquisition metrics showed meaningful improvement with 17.2 million gross additions up 2.7% year-over-year.
What Wall Street Thinks
Analysts appear cautiously optimistic about Etsy's turnaround story, with consensus estimates showing modest revenue growth resuming in 2027 ($2.848B vs $2.745B in 2026). The forward P/E multiple suggests reasonable valuation expectations, while EPS growth from $3.06 to $3.50 between 2026-2027 indicates confidence in margin expansion. The Depop sale likely addresses previous concerns about business focus and capital allocation.
The Bottom Line
Etsy has reached an inflection point, returning to marketplace growth after two years of decline while maintaining exceptional profitability and preparing to deploy $1.2 billion in cash from the Depop sale toward its core business.
