handmade goods, reported its highest ever annual revenue of

$2.7 billion in 2023.

But that's not the full picture.

Its gross merchandise sales, or the total value of goods

sold on Etsy, declined in the same period, falling flat for

the second year in a row.

It stocks its more than 70% lower than its 2021 high, and

first quarter 2024 earnings results didn't look much

better.

Etsy's consolidated results, while within our guidance

range, were not where we wanted them to be.

After the big increase in both buyers and spending per buyer

during Covid, it looks like they've hit a wall and you

basically have a company that has not grown in two years.

Some longtime sellers are partly blaming CEO Josh

Silverman, saying his focus on profits has pushed the

company away from its vision, allowing counterfeits and mass

produced items to thrive, demoralizing artists and

buyers.

Competing with people who are generating art via artificial

intelligence. Now I can't compete.

It's just junk. A lot of it.

You're just going to be a slightly more expensive

Amazon. That seems like a terrible business plan.

With discretionary spending down a first quarter 2024 miss

in both merchandise sales and profits, and an acknowledgment

of poor execution by its CEO, Etsy's future is uncertain.

It's a public company.

Its job is to return value to shareholders.

At the end of the day, they need to be able to sell things

that people want.

When Etsy first came on the market in 2005, it was a

revolutionary idea.

People who loved arts and crafts finally had a place to

buy those things all the time and get connected with sellers

and artisans and artists who maybe they would have never

encountered before.

Etsy's founder and then CEO, Rob Kalin built the platform

to empower artisans.

His vision was that Etsy could influence society in a

way that people would think more consciously about the

products they chose.

How do you get from just doing it as more of a hobby, to

organizing this to the point where you can actually make a

living?

The virtual storefront also enabled a new kind of

revolution.

These small businesses, these local artists, suddenly had

the ability to connect with buyers all over the world.

And this was huge.

I mean, it was an opportunity for them to grow their brand,

grow their sales.

Nicole Aline Legault and Chiarra Lohr are just two of

the many artists who joined Etsy to sell more of their

work. Legault has been there since 2009.

Everyone that I knew was opening up a little shop

because it was one of the only places that was offering

this platform and template.

It was very about the sellers.

They were really driving the traffic and making the site

what it was and creating a community.

Transaction fees were initially low.

Etsy received B Corporation status in 2012, and was one of

the first companies with that certification to complete an

IPO, which it did in 2015.

At the time, it was valued at $1.8 billion, but the cracks

in Etsy's foundation were already forming.

Kalin stepped down as CEO in 2011 for a second time.

As competition was stiffening, the next CEO made

a big change in 2013, allowing artists to use

outside manufacturers to produce their designs.

The term handmade was getting looser.

And in this new public arena, the company was beholden to

financially focused shareholders with a laser

focus on growth.

Etsy's stock lost more than 70% of its value its first

full year as a public company.

From the beginning, Etsy wasn't profitable.

You know, when it went public, it was deeply in the

red. This wasn't uncommon for e-commerce companies.

It's still not necessarily uncommon for disruptive new

startups and things like that. But over time, you

needed to kind of change that.

Vendors, too, were unhappy for different reasons.

There's been a massive culture clash at Etsy.

It's something that really started after the company went

public. It's happening internally with employees who

had been there since the beginning, had kind of seen

this company as, you know, different.

Yet another CEO was appointed in 2017.

Josh Silverman made both short and long term changes,

laying off 22% of Etsy's workforce that year and later

pushing through transaction fee hikes and shipping fees.

He also introduced a new tier -based subscription model for

sellers to jumpstart their growth--at a cost.

It's ultimately like maybe too focused on keeping the sellers

happy and wasn't doing enough to kind of drive buyer

satisfaction. So that's what Josh tended to focus on, you

know, kind of maybe more balancing both sides of a

marketplace, which is key.

By 2018, things were picking up, sales were growing, and

the stock was at its highest.

The turnaround was attributed to Silverman's leadership.

And then the pandemic.

For the month of April, Etsy sold $133 million worth of

face masks. That's 12 million face masks.

The pandemic was a boon for Etsy.

The number of active buyers increased by about 77%.

Gross merchandise sales grew by more than 100% year over

year in 2020, and more than 30% in 2021.

Etsy stock price reached its all-time high that same year.

It also started charging some of its sellers for

advertising, bringing in additional streams of revenue.

Pandemic related success is just that it's a fluke.

It's a flash in the pan.

So far missed earnings in 2023 and the first quarter of 2024

are leaving investors with little doubt that the pandemic

may have been just that a fluke.

In December 2023, the company laid off 11% of its staff.

But as Etsy focuses on a comeback, it's also angering

some of its biggest stakeholders its sellers.

Etsy has been changing how buyers interact with the

platform to prioritize buyers buying more, faster and

staying on Etsy, not prioritizing buyers having a

good experience from individual sellers.

Chiarra Lohr leads the Indie Sellers Guild, a labor

advocacy group for Etsy sellers formed after a week

-long strike against the platform. Creators were

frustrated by yet another transaction fee increase and a

controversial star seller program that prioritized

sellers who meet requirements like fast shipping, high

ratings and quick response times.

And everything seems very corporatized.

It's almost as though you're penalized for not using Etsy

the way they're trying to make you use it.

Don't shut down my shop without letting me talk to a

person. Don't issue a refund to a buyer without getting

proof that it was damaged.

It's not drop your fees by half.

It's not get rid of offsite ads.

It's let me opt out if it doesn't work for me.

Kind of all those things accumulating to where they

find themselves heaping less and less of the money from

when they have a sale, but having to do more and more

work, not even in their craft of the thing that they make,

but just to make their Etsy shop work for them.

The company has said it had to make some tough changes to

compete with giants like Amazon, which spends more on

marketing and has more repeat buyers.

Its deteriorating reputation is another issue the company

is fighting. Sellers have blamed the 2013 rule change,

allowing creators to outsource their production for

what they call the "junk-ification" of Etsy.

This isn't a new problem, but one that some say has gotten

worse as the number of sellers grows.

I want to show you the the sadness on Etsy and what it's

become.

Legault went viral for her TikTok, exposing many of the

top Etsy shops as dropshippers or sellers who

make the designs but outsource the labor to another

company. Some designs are made with AI generated images.

Dropshippers are able to mass produce items like T-shirts,

stickers and stationery.

Others just sell supplies like beads.

In a comment to CNBC, Etsy said that it recognizes its

current definition of handmade, includes a broad

spectrum of items, and will clarify its policies to be

more transparent about what belongs on Etsy in the coming

months.

There are some like old school people in there, very few.

But, um, every click I was like, what is it?

Cups again, cups and then another.

I click again, it's cups again.

And I'm just like, how is this possible?

I get that it's business, but it's so not how I want to do

business.

Though this comes at odds with the company's mission, it is

not necessarily bad for its finances.

If people are buying it, then there's not a lot of incentive

for management to change that because it's working,

apparently. But of course, you are going to risk

alienating the people who started with the platform.

I think we do pay attention when sellers object to some of

the policy or pricing changes, but I don't think

it's had any impact on their business.

Etsy said it removed 115% more listings for violating company

policy in the first quarter of 2024, than the year prior.

We've always taken down items for not complying with not

handmade. That's always been a focus, but we've been

getting better technology and investing a lot in that.

As Etsy tries to compete with e-commerce giants like eBay or

Amazon. The path for being both successful and loyal to

its core principles is unclear.

Can you be Etsy while also having the pressures of a

public company? Should it have gone public?

I mean, it depends on who you ask.

Etsy CEO says the company is still trying to engage and

retain current buyers, half of whom only shop on Etsy once

per year. The 7 million artists are what the company

was founded on, and without them, Etsy is perhaps no

longer Etsy or offers what buyers are looking for

anymore.

Many sellers feel trapped.

They're not really making enough profit margin on Etsy

anymore. But because Etsy is still there, it's very hard

for alternatives to grow, right?

So they've kind of really taken over this space and then

shifted and are now like still sitting in that space.

In February 2024.

Activist investor Elliott Management built a 13% stake

in the company, the largest of any investor, earning it a

board seat. Stock shot up more than 10% on the news.

We haven't really seen a ton yet as far as what the impact

will be from that.

But generally, public market investors generally do applaud

activists being involved because it perhaps is an

outside opinion kind of coming into a room.

I actually think the most likely case is Etsy will find

a way to use that AI to help their sellers, and then

perhaps it'll be a way to kind of build up trust, which

is like, let us set the price.

I think what also they're missing is that we are not

into having these third parties.

Like, I want to work directly with my printer, I want to

work with other artists, I want to collaborate.

I want to do these things in in the way that makes me feel

human.

Ultimately, some major changes could shake up the company if

it can't boost profits or innovate fast enough.

In February 2024, it introduced a one-time seller

fee of $15 for new shops, which it said helped boost

revenue in its Q1 results.

If ultimately, you know, the the outlook for the company is

five 6%, 7% revenue growth and not 13% revenue growth,

they probably would restructure their expenses.

Could they shrink the size of the organization, have more

layoffs, increase the margin?

I mean, generally scaled marketplaces can operate at