Hi there,

Today, we will talk about how Etsy tried to reset its business after the pandemic boom faded and growth became harder to sustain.

Etsy became one of the big winners of the pandemic e-commerce surge. Buyers rushed online, and the company reached record levels of sales, revenue, and active buyers in 2021. But once that surge cooled, Etsy had to face a harder market with softer demand, more competition, and slower growth.

Executive Summary

In 2021, Etsy reported record consolidated GMS of about $13.5 billion and 96.3 million active buyers. That year showed how powerful the platform could be when online shopping demand was high, and buyer engagement was strong. It also set a very hard base for the years that followed.

By 2025, Etsy’s total sales had dropped to about $11.9 billion, and there were only 86.5 million active buyers left on the marketplace. The company still managed to bring in $2.88 billion in revenue, but most of that came from things like ads and fees, not more people actually buying stuff. That was the real problem: Etsy needed to make the main marketplace stronger again, not just find ways to work around fewer buyers.

Background

Etsy built its brand around handmade, vintage, and unique goods sold by independent sellers. That model gave it a clear identity and helped it stand apart from giant marketplaces built around scale and low prices. It also created a loyal community on both the buyer and seller sides.

After the boom years, the market became less forgiving. Etsy said discretionary spending pressure, changing buyer behavior, and a promotional retail environment hurt marketplace GMS, while Reuters also reported strong competition from bigger e-commerce players and softer consumer demand. As growth slowed, Etsy had to rethink where to invest, what to cut, and which parts of the business mattered most.

The Business Challenge

1. Boom Comparisons Turned Tough

Etsy had to compare new results against unusually strong pandemic-era numbers, which made normal growth look weak. That mattered because even small declines in buyers or spending started to look like bigger strategic problems.

2. Buyer Momentum Slowed

In the first quarter of 2025, Etsy marketplace GMS fell 8.9% year over year, and active buyers dropped to 88.5 million. That showed the company was not only facing slower spending, but also weaker buyer energy in the core marketplace.

3. Discretionary Demand Stayed Weak

Etsy sells many products that people want rather than need, such as gifts, home décor, and craft-related goods. When inflation and household pressure rise, those categories often get cut first.

4. Competition Got Harder

Etsy had to fight for traffic, buyer attention, and seller loyalty against larger e-commerce platforms. That pressure mattered because rivals with more scale, lower prices, or faster shipping could pull buyers away more easily.

5. The Portfolio Lost Focus

Etsy had expanded beyond its core marketplace through businesses like Reverb and Depop. Over time, management and investors began to favor a simpler structure that put more attention on the main Etsy marketplace.

The strategic moves

1. Refocus on the Core

Etsy sold Reverb in 2025 and agreed to sell Depop to eBay for $1.2 billion in 2026. This helped management double down on the main marketplace, but it also showed that earlier portfolio expansion had not become the long-term growth answer.

2. Push Buyer Reactivation

The company worked to bring back lapsed buyers and keep more existing buyers active. This was smart because reactivation is often cheaper than finding entirely new customers, but it also meant Etsy had to improve the buyer experience enough to make people return.

3. Lean on Marketing More Carefully

Etsy increased spending in channels and regions where it believed returns were stronger. That helped support demand, but it also raised the risk of becoming too dependent on paid growth.

4. Use AI and Personalization

Etsy said it was using artificial intelligence and machine learning to create a more engaging app experience and richer personalization. This could improve conversion and discovery, but it still requires time and steady investment before becoming a major growth engine.

5. Grow Revenue Quality

Even while GMS pressure continued, Etsy improved take rate and service revenue through advertising and seller fees. That helped protect profits, but it could not fully replace the need for stronger marketplace demand.

Execution

1. Bring Buyers Back

In the first quarter of 2025, Etsy reactivated 6.5 million buyers and added 4.8 million new buyers. These efforts mattered because the reset needed fresh buyer activity, not only better storytelling.

2. Improve Second-Half Momentum

Etsy said customer experience and marketing initiatives helped improve year-over-year comparisons through 2025. By the fourth quarter, Etsy marketplace GMS had returned to slight growth year over year.

3. Simplify the Company

Management completed the sale of Reverb and moved forward with the Depop sale. This made the business easier to understand and allowed more capital and attention to flow toward Etsy’s core marketplace.

4. Support Sellers Through Services

Etsy kept growing service revenue through Etsy Ads, payments, and seller-related fees. This worked because sellers still needed tools that could help them get traffic and complete transactions.

5. Look for Early 2026 Improvement

In the first quarter of 2026, Etsy marketplace GMS rose 5.5% year over year, and marketplace revenue rose 7.6%. That did not solve every problem, but it gave the company a better signal that the reset might finally be gaining traction.

Results and Impact

1. The Peak Clearly Passed

Etsy was no longer operating at its 2021 pandemic peak by 2025. GMS and active buyer levels had moved down from boom-era highs, which confirmed that the business had entered a harder phase.

2. Revenue Stayed More Resilient

Even with weaker marketplace demand, Etsy still grew total revenue in 2025 to about $2.88 billion. That result showed the company had some financial protection from services and take-rate improvements.

3. Margins Benefited From Focus

Investors reacted positively when Etsy sold Depop, in part because analysts saw Depop as less profitable than the core Etsy marketplace. That meant simplification was not only strategic, but also financially attractive.

4. The Reset Stayed Incomplete

At the start of 2026, Etsy still warned that macro conditions and discretionary spending mattered a lot. The company was improving, but it had not fully escaped the pressures that created the reset in the first place.

5. Early Signs Turned Better

The first quarter of 2026 brought a stronger Etsy marketplace GMS, higher revenue, and more spending per buyer. That lasting effect was important because it suggested Etsy’s reset was starting to move from defense into early recovery.

Lessons for Business Leaders

1. Boom Periods Can Distort Strategy

A company can look stronger than it really is when outside conditions are unusually favorable. Leaders should be careful not to treat temporary demand spikes as permanent business strength.

2. Core Health Matters More Than Headline Revenue

Etsy grew revenue in 2025, but core marketplace demand still needed work. Leaders should always separate true operating strength from revenue supported by fees, mix, or accounting effects.

3. Focus Can Be a Growth Strategy

Selling-side businesses can be the right move when they distract from the main engine. The warning is that expansion only helps when it strengthens the core, not when it spreads attention too thinly.

4. Recovery Starts With Better Basics

Buyer reactivation, stronger search, better personalization, and a clearer value story may sound small compared with big acquisitions. But in many results, steady operational fixes matter more than dramatic headlines.

5. A Reset Is Not the Same as a Comeback

Early improvement is useful, but one better quarter does not erase years of pressure. Leaders should treat recovery as a process and keep building until growth becomes stable again.