August 4, 2023: On Thursday, Etsy shares decrease after the firm reported better results but provided weak guidance for third-quarter earnings and gross merchandise sales, or GMS.

On Wednesday, Etsy said that it expects third-quarter revenue to be between $610 million and $645 million, which would decreased short of the $632 million analyst estimate, according to Refinitiv. GMS, which measures the total number of goods traded over a certain period, is projected to come between $2.95 billion and $3.1 billion. At the midpoint, it decreased short of the $3.04 billion a survey of Refinitiv analysts predicted.

The weak guidance overshadowed an otherwise outperforming second-quarter report. The company beat anticipations on the top and bottom lines, while GMS of $3 billion exceeded expectations of $2.98 billion. Services revenue, which accounts for advertising, was an outsized sales catalyst during the quarter, growing roughly 21% yearly.

On a call with analysts, Etsy CFO Rachel Glaser pointed to the return of student loan amounts in the decline and eliminating child tax credits as factors that could stretch consumers’ wallets and weigh on GMS in the third quarter.

CEO Josh Silverman conceded that the macro environment “remains challenging.” The online marketplace, known for its handmade and artisan goods, benefited enormously from sales during the pandemic as consumers embraced digital retailers in droves. Etsy witnessed its earnings triple in 2020, primarily driven by sales of face masks.

“Over the previous few years, Etsy has gone from a period where we grew tremendously with so many tailwinds at our back to a period of stiff headwinds and uncertain macroeconomic circumstances,” Silverman stated. “Consumers resume to make very tough choices on where and how to spend their money, and we’re fighting hard to help our sellers get their share.”

Even Etsy isn’t resistant to the AI craze that has captivated Silicon Valley. Silverman told investors on the call that Etsy has a “small but mighty” team of AI and device education experts working to deploy these technologies “in almost every customer touchpoint,” such as tools for sellers and shopping recommendations.

“We wouldn’t want to do anything that makes the site look homogenous or boring,” Silverman said. “So, we’re going to be very careful about that. And more listings don’t necessarily translate into more sales for Etsy. So if it’s reasonable for sellers, we’ll lean in.”