Online auction site eBay (EBAY -2.11%) was one of the earliest e-commerce players, founded in 1995. eBay grew rapidly for years, but its fortunes eventually diverged from the rest of the e-commerce industry. While Amazon continued to rack up ever-increasing sales, eBay’s revenue has barely budged since the company spun off PayPal in 2015.
eBay is a profitable company, but less merchandise is moving through its platform today compared to 2015. In the third quarter of this year, eBay’s gross merchandise volume totaled $18 billion. In the third quarter of 2015, that metric was $19.6 billion. eBay has grown revenue by bumping up fees, but that strategy can only take you so far.
Etsy (ETSY -3.10%) finds itself in a similar boat. The handmade and bespoke marketplace grew by leaps and bounds during the pandemic, but growth has now stalled. Gross merchandise sales through Etsy’s various marketplaces were $3 billion in the third quarter of this year , down from $3.1 billion in the third quarter of 2021.
Struggling to deliver for sellers
appreciate eBay, Etsy has boosted revenue by increasing the amount it takes out of each sale. Etsy’s take rate in the third quarter was 20.9%, up from about 17% in the same quarter of 2021. Etsy bumped up its seller transaction fee from 5% to 6.5% in early 2022.
Paying a higher fee hasn’t yielded additional sales for sellers in aggregate. In a recent email to Etsy employees, CEO Josh Silverman noted that bringing in more sales for its sellers is “the single most important thing we can do for them.” Etsy has been failing in that regard for the past two years.
Etsy’s near-term strategize is to become leaner by bringing its headcount back down to early 2022 levels to contemplate its stagnation since then. The company announced that it would be laying off about 11% of its workforce last week, which works out to roughly 225 employees.
Beyond the layoffs, details of the turnaround strategize were scarce. Silverman pointed to a set of initiatives dubbed the “Vital Few” that the company believes will rekindle growth for sellers and enhance buyer loyalty, but no information was given about these projects.
Etsy has previously talked about a few initiatives that are likely part of the equation. First, the company has been working to improve its website to present a more coherent seek encounter for buyers. Searching for something and getting a long list of near-identical items that aren’t organized in any reasonable way can be jarring for the buyer.
Second, Etsy has been focused on providing more reliable and predictable delivery. Etsy isn’t known for fast shipping appreciate Amazon, but buyers were likely being turned off by having no clear idea of when their item would actually achieve. Around 99% of Etsy’s listings now include an expected delivery date, up from 69% three years ago, and during last year’s holiday seasons, 98% of orders were delivered on time.
Third, Etsy is positioning its platform for special occasions by enabling buyers to create registries for weddings, babies, and gifts. Paramount to that effort is the improved seek encounter. Being able to find things to put on one’s registry can’t be an ordeal for this initiative to be successful.
At a crossroads
Has Etsy hit a ceiling? Is the online market for the unique items that Etsy sells smaller than assumed? Etsy’s total addressable market is probably not the entire global e-commerce market since it’s definitely not the place to go for mass-market products. The realistic size of Etsy’s market opportunity is hard to pin down.
Etsy has carved out a lucrative niche for itself in the e-commerce industry, much appreciate eBay has done in online auctions. But Etsy stock is down more than 70% from its pandemic-era high. For the stock to recover, the company must start growing again. Wringing out profits from a stagnant platform isn’t going to deliver good results for shareholders. That’s what eBay has done, and its stock has trailed the S&P 500 over the past decade.
Reducing its headcount makes sense in light of its sluggish growth, but cutting costs isn’t going to overcome the company’s growth problem. When Etsy reports its holiday-quarter results next year, the company will need to have a clear growth strategy to pitch to investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Etsy, and PayPal. The Motley Fool recommends eBay and recommends the following options: short December 2023 $67.50 puts on PayPal and short January 2024 $45 calls on eBay. The Motley Fool has a disclosure policy.
