Key Points
The e-commerce company is demonstrating mixed results, but there have been plenty of positive signs.
It divested all of the platforms it has acquired over the past few years to focus on its core marketplace.
The retail market is pressured right now, especially in home improvement, Etsy's largest segment.
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Handcrafted e-commerce platform Etsy (NYSE: ETSY) hasn't given shareholders too many reasons to cheer over the past few years. It's off an astounding 79% from its all-time highs as it has failed to regain traction after a pandemic-fueled surge.
But it's been making some changes, and the stock has gained 37% over the past year. Believe it or not, a long-term growth scenario is still on the table. Here's how it could happen.
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Getting back to its roots
Etsy was more of a niche company before COVID, when people were delighted with custom-designed face masks, sales exploded, and it became a household name.
In a tale that's happened many times before, Etsy built out quickly, acquiring other companies that complemented its business to create a formidable platform. However, the momentum faded, and the company was stuck with a sagging business.
Image source: Getty Images.
With a new CEO and renewed focus, Etsy has been selling off its noncore businesses one by one and firing up its platform with artificial intelligence (AI) and other features.
The company's 2025 fourth-quarter results were mixed, with several highlights, including a 6.6% increase in gross merchandise sales (GMS) on its app, which represented 46% of the total, and the addition of 6.8 million new buyers. On the other side, total GMS was roughly flat, and active buyers were down 3.4%. Net income has been falling as well.
There are clear opportunities here in reaching new buyers where they are and rebuilding the business as the Etsy-only marketplace. Management gave a bright outlook for GMS to grow year over year in each quarter of 2026, and Chief Financial Officer Lanny Baker said that there are positive early indicators of success from new initiatives that the company expects to expand into longer-term growth.
Part of what's plaguing it today is inflation and a poor real estate market; home improvement is its largest segment and represented 38% of total GMS in the 2025 fourth quarter. If inflation abates, or whenever people return to fixing up their homes, Etsy could seriously rebound.
The road to 5x
With 4.9% sales increase in 2025 and plunging profits, how can Etsy ever have a multiple of five, you ask? Good question. First, understand that this is not a hot AI stock that can hit 5x in a year. It's going to take time and patience.
As a leaner company, it can focus on its core sales, and with a curated marketplace targeting niche buyers, it can operate more efficiently. Its 2025 net income of $162 million is significantly less than its highs of more than $400 million, which was actually well after the pandemic. An improving retail environment should affect it positively.
Let's take a hypothetical scenario, where this is the bottom, and it can begin to grow earnings. At a compound annual growth rate (CAGR) of 20%, net income would reach $815 million over the next nine years. Keeping a constant price-to-earnings ratio, the stock would be five times higher as well.
That's a long time, but it's also just one scenario. At a CAGR of 30%, it would need less than seven years, and of course, it could take much longer. Etsy's recovery isn't a bet for the risk-averse investor, but there is a path forward.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Etsy. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
