Etsy (ETSY) Is Fixing Its Story, but the Market Hasn’t Caught On

Etsy (ETSY) is starting to fix its core marketplace, with the Depop sale sharpening the turnaround story and supporting a bullish view. With the stock down about 23% over the past six months, sentiment remains cautious amid weak discretionary demand and slowing growth in buyers. However, shedding Depop simplifies the business, strengthens margins, and refocuses management on the core platform, making the current pullback look more like an opportunity than a warning sign. I’m bullish on ETSY.

The Depop Sale Cleans Up the Story

The biggest near-term catalyst is clearly the Depop divestiture. Etsy, the online marketplace that connects sellers and buyers globally, agreed to sell Depop to eBay (EBAY) for $1.2 billion in cash, a deal expected to close by the second quarter of 2026. Strategically, I think this is a positive move. Depop may have added growth, but it also dragged on profitability and management focus.

As per analyst estimates, Depop represented an 80-basis-point drag on take rate and about a 350-basis-point drag on adjusted EBITDA margin in 2025. Removing that drag makes Etsy’s underlying economics look better almost immediately.

Just as important, the proceeds are meaningful. That gives management real flexibility. It could step up buybacks beyond the existing authorization, reinvest in the core marketplace, or do some combination of both. Even if Etsy simply allocates the capital prudently, the balance sheet and capital return story improve meaningfully.

For me, though, the biggest benefit is focus. With Reverb already gone and Depop on the way out, Etsy becomes a cleaner, simpler company. Investors no longer need to debate whether smaller side businesses are masking or distracting from core marketplace trends. The investment case becomes much more straightforward: can Etsy get the main marketplace back to sustainable growth? I think the odds of that are improving.

The Core Marketplace Is Stabilizing

This is the part of the thesis that matters most. In Q4, consolidated gross merchandise sales (GMS) rose 2.4%, and the core Etsy marketplace posted slight year-over-year growth, a notable improvement from prior quarters. That may not sound exciting, but after a long stretch of declines, stabilization is an important first step.

There were other encouraging signs, too. GMS per active buyer improved, active buyer declines moderated, and buyer cohorts such as reactivated buyers rose 6% year-over-year. New buyer trends also improved sharply from the prior quarter. In short, Etsy is not back to robust growth yet, but the data increasingly suggest the business has moved past the worst of the demand reset.

Management’s 2026 outlook also points in the right direction. Core marketplace GMS is expected to be up in the low single digits in the first quarter and remain positive throughout the year. That matters because it suggests Etsy is not relying solely on financial engineering; there is a real operational recovery underway.

AI and App Improvements Could Help Drive Frequency

If Etsy is going to work as a stock from here, it needs more than just easier comparisons. It needs better engagement, better conversion, and better repeat behavior. That is where the product story comes in.

Management has been leaning into AI-powered discovery, search, recommendations, and ad targeting, and early tests appear encouraging. Etsy is also working with OpenAI and Google (GOOGL) through shopping integrations, while building more first-party tools to improve how buyers find relevant inventory. That is especially important for Etsy because its catalog is vast, fragmented, and highly personal. Better matching can have an outsized impact on conversion.

The Etsy app also continues to look like a bright spot. App GMS grew 6.6% year-over-year, faster than the prior quarter, and now accounts for roughly 46% of total GMS. Downloads grew more modestly, but the broader point is that the app is becoming an increasingly important engagement channel. A stronger app experience can help Etsy build the frequency and retention it needs, particularly now that new buyer growth is no longer a tailwind as it was during the pandemic.

Valuation Still Looks Attractive

The stock is no longer priced like a growth darling, and that is part of the appeal.

My valuation work also supports the upside case. Based on 13 valuation models, including P/E multiples, EV/EBITDA, and a five-year discounted cash flow (DCF) revenue exit, I calculated fair value at about $75 per share, implying around 39% upside from the current stock price. 

Even if that proves a bit optimistic, it still suggests the stock is undervalued if the core marketplace can simply execute to modest growth.

Wall Street’s View

According to TipRanks, the average rating on ETSY is Moderate Buy, with seven Buy, 11 Hold, and one Sell ratings. Based on 19 Wall Street analysts offering 12-month price targets for Etsy, the average price target is $62.63, implying 16.41% upside from the last price of $53.80.

Conclusion

I am bullish on Etsy because the Depop sale makes the turnaround story cleaner, more focused, and easier to believe. The company is shedding a lower-margin distraction, improving its profitability profile, and gaining a sizeable cash war chest at the same time. Meanwhile, the core marketplace is showing real signs of stabilization, app engagement is improving, and AI-driven personalization could help Etsy do what it needs most: increase buyer frequency and retention.

There are still risks, especially around discretionary spending and macro volatility. Yet with the stock down more than 23% in six months, and my fair value around $75, I think the risk-reward looks attractive. That is why I remain bullish on ETSY and why I think this pullback is a good opportunity.