ETSY Q4 Deep Dive: Core Marketplace Refocus and Early AI Gains Amid Buyer Headwinds

Online marketplace Etsy (NYSE:ETSY) met Wall Street’s revenue expectations in Q4 CY2025, with sales up 3.5% year on year to $881.6 million. Its non-GAAP profit of $1.34 per share was 1.8% below analysts’ consensus estimates.

Is now the time to buy ETSY? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Etsy’s fourth quarter results were met with a positive market reaction, as the company’s profitability exceeded Wall Street expectations despite ongoing softness in buyer activity. Management attributed this outcome to operational improvements in its core marketplace, such as reorganizing around customer outcomes and investing in targeted marketing, particularly on social channels like TikTok. CEO Kruti Goyal emphasized that enhancements to Etsy’s mobile app and personalized marketing efforts are beginning to drive healthier engagement and retention, noting, “Our app is making it our most personalized and engaging platform.”

Looking ahead, Etsy’s focus is on leveraging artificial intelligence (AI) and machine learning to improve product discovery and deepen engagement with both existing and new buyers. Management believes that expanding agentic shopping partnerships—such as those with Microsoft Copilot and Google—will help capture emerging shopping behaviors, especially among younger consumers. CFO Lanny Baker stated, “We plan to use the proceeds of the Depop sale for investment in the Etsy marketplace,” highlighting a shift toward product innovation and marketing to rebuild sustainable growth.

Key Insights from Management’s Remarks

Management highlighted several operational shifts and product initiatives as primary drivers behind Etsy’s latest performance and evolving strategy.

• Depop divestiture for focus: Etsy signed a definitive agreement to sell Depop to eBay for $1.2 billion, allowing management to concentrate resources and capital on the core Etsy marketplace. CEO Kruti Goyal described this as “a great outcome for Etsy’s shareholders,” citing the opportunity for higher returns on invested capital.
• Mobile app drives engagement: The company’s mobile app saw accelerating growth, with app users visiting more frequently and converting at higher rates than website users. App-generated gross merchandise sales (GMS) share increased to 46%, with management viewing mobile as critical for engaging younger shoppers.
• Personalization and discovery: Investments in machine learning have enabled more personalized recommendations, particularly through the app and owned marketing channels. Over 75% of push notifications and emails are now personalized, supporting improved buyer retention and engagement.
• Operational reorganization: Etsy shifted to an outcomes-focused structure by consolidating product and engineering and unifying customer support and trust teams, aiming to speed execution and clarify accountability for customer experience improvements.
• Emerging AI and agentic commerce: Early partnerships with AI platforms like ChatGPT and Microsoft Copilot have produced a fifteenfold increase in agentic traffic year over year, though this remains a small share of overall traffic. Management sees agentic commerce as an incremental channel for discovery and high-intent buyers, with orders from these platforms showing higher value than traditional channels.

Drivers of Future Performance

Etsy’s outlook centers on accelerating growth through AI-driven personalization, expanded marketing, and a sharper focus on its core platform.

• AI-powered personalization: Management expects continued investment in AI and machine learning to enhance product recommendations, improve search relevance, and drive higher engagement for both buyers and sellers. These capabilities are projected to support durable growth by better matching shoppers with unique inventory.
• Reinvigorating buyer base: Targeted efforts to attract younger and lapsed buyers—through elevated marketing spend on social platforms and influencer partnerships—are expected to address demographic shifts and increase purchase frequency. Management cited TikTok investment as particularly effective for reaching new, younger audiences.
• Depop sale proceeds reinvestment: Proceeds from the Depop divestiture will be allocated to product innovation and share repurchases rather than large-scale acquisitions. The company’s capital-light strategy prioritizes internal investment in the Etsy platform to drive long-term growth, with management stating that the “best returns are investing internally in the Etsy business.”

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be monitoring (1) the pace and impact of AI-driven personalization on buyer engagement, (2) the effectiveness of expanded marketing investments—especially in social channels and influencer partnerships—to attract younger and lapsed buyers, and (3) execution of reinvestment plans following the Depop sale. Additionally, we will watch for improvements in purchase frequency and signs that Etsy’s core marketplace can return to sustained growth.

Etsy currently trades at $48.83, up from $44.05 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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