Etsy's stock dropped as the company revealed plans to slash 11% of its workforce, driven by the need to reduce costs due to a decline in demand for handmade goods. The company expects financial charges of $25 million to $30 million for severance payments and related expenses concerning 225 workers.
Etsy's Origin
Etsy is an online marketplace where independent sellers can create their shops, specializing in unique and handmade items not commonly found in regular stores. It's a U.S.-based company that has traded on the Nasdaq stock exchange since its listing in 2015. Etsy's shares are valued at around $84 each, a significant decrease from the peak of over $294 during the 2021 COVID-19 pandemic. The company is led by CEO Josh Silverman, who has diverse experience from companies like eBay, Skype, and American Express, serving as CEO since 2017.
In August, Etsy decided to adjust its policy following complaints from sellers about funds being withheld. This change happened after the BBC highlighted instances where some sellers held 75% of their money for 45 days. Etsy stated that it would significantly reduce the amount of money subject to have but did not specify the new rate or duration.
A Very Challenging Macro for Etsy
Etsy is reducing its workforce by 11% amid the holiday shopping season, citing a challenging overall environment. Approximately 225 employees will be affected, bringing the total headcount for the DIY e-commerce site to around 1,770, a level similar to early 2022.
CEO Josh Silverman explained that the company is facing a challenging overall and competitive situation, with gross merchandise sales (GMV) staying nearly the same since 2021.
Etsy faces challenges as it grapples with a stagnant sales environment for sellers and rising employee expenses despite cost-cutting efforts. The current trajectory is deemed unsustainable, prompting the need for strategic changes.
Etsy's Workforce Changes
While beneficial for long-term savings, the job cuts at Etsy will cost $25 million to $30 million. The majority of this expense is allocated to severance payments. Etsy has committed to paying affected employees through January 2 and providing 16 weeks of severance.
Executive departures and organizational changes, including the release of Chief Marketing Officer Ryan Scott, were disclosed by Etsy. The workforce dropped to 1,770, and shares hit $78.54, representing the most significant decline since August due to the layoffs. The company has updated its fourth-quarter estimates, predicting a 2% to 3% rise in revenue and a 1% to 2% year-over-year decrease in gross merchandise sales.
Etsy's Stock Forecast
Currently, 32 analysts covering Etsy's stock have a median price target of $70, unchanged from a month ago, and their current recommendation is "hold," as per LSEG data. Last month,
Etsy Inc. warned about a low to mid-single-digit drop in fourth-quarter gross merchandise sales. This was attributed to reduced demand for handcrafted goods on its online platform, causing a 10% decline in its shares in after-hours trading.
