This Niche E‑Commerce Stock Has Been Cut in Half Since 2023 -- Here's Why It's About to Go Parabolic

Let's start with a fun and surprising fact: Etsy (NYSE: ETSY) has never stopped growing. Shares of the arts-and-crafts online marketplace operator have fallen 53% since its 2023 high -- and down a blistering 77% from its all-time peak in late 2021 -- but Etsy has found a way to deliver positive annual revenue growth.

It may not be much these days. Etsy has rattled off three consecutive years of single-digit top-line growth. Making matters worse, gross merchandise sales (GMS) -- the lifeblood of its platform -- have declined slightly in each of those three years. Etsy is finding ways to grow through digital storefront sluggishness by broadening its offerings and increasing its take rate, but the latter could be problematic down the line. The last couple of times that it raised seller fees in 2018 and 2022, many artisans on the platform threatened to strike or walk.

Image source: Getty Images.

How about another fun, surprising factoid? Etsy stock has actually beaten the market over the past year with its 46% pop. If you want an extra layer of dexterity to the stock's ascent, Etsy shares have moved higher despite analysts bracing for the platform's first year of declining revenue.

There's a fair asterisk on that front. Etsy announced in February that it was selling its fashion-forward secondhand store, Depop, to eBay (NASDAQ: EBAY) for $1.2 billion. Etsy had paid $1.6 billion to acquire the brand five years ago, and it was growing faster than its flagship business. Revenue will naturally take a step back, with one less contributor on its books. This may seem like a bad move, but investors are digging Etsy's decision to focus on its namesake business.

Art is in the eye of the beholder

The business that Etsy is doubling down on is stagnant. Last year, its active sellers rose 8% to 8,762. However, its active sellers have declined in back-to-back years. That needs to get moving in the right direction. Thankfully, Etsy continues to be the leader in its niche.

Selling Depop may hurt near-term growth, but there are plenty of social e-commerce hubs attracting young shoppers to hand-me-down and discounted fashions. Etsy's February guidance calls for a return to GMS growth after three years of sliding.

This could be the perfect time for an Etsy renaissance. The pandemic ignited a boom in sellers discovering their ability to create artsy merch. Revenue didn't more than double in 2020 from stylish COVID-19 masks alone. There was a fire of entrepreneurial spirit, and it could happen again.

It's a perfect storm. With gas prices going higher, why wouldn't more art-savvy members of the gig economy turn to Etsy's platform? If AI displaces more industry creatives, Etsy's there as a side hustle, if not as something more. This year could be a great time to be a hotbed for work-from-home cottage industries. Your move, Etsy.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Etsy and eBay. The Motley Fool has a disclosure policy.