Why Etsy, Inc. Shares Plunged 31% in August

What: Shares of freshly public Etsy plunged by a whopping 31% last month, according to S&P Capital IQ data. The primary culprit for the drop was a disappointing second-quarter earnings release to start off the month.

So what: Revenue in the second quarter came in at $61.4 million, which beat the Street's expectations of $60 million in sales. But total operating expenses also skyrocketed nearly 50%, and the company's net loss more than doubled from a year ago to $6.4 million or $0.07 per share. Growth in gross merchandise sales, or GMS, is also decelerating, and Etsy's international revenue is suffering from foreign exchange headwinds. Roughly 9% of GMS comes from sales listed on foreign currencies, and 30% of GMS is generated abroad.

Now what: Etsy's guidance also warns that the currency challenges will hurt results in the coming quarter. The company is also planning to continue spending heavily on marketing in absolute dollars, while similarly growing its total head count. The third quarter will also face a tough comparison, since a year ago Etsy relaunched Promoted Listings and expects some deceleration.

Etsy is also facing intensifying competition from Amazon.com, as the e-commerce giant recently launched Amazon Handmade as a direct threat, with Etsy in its crosshairs. Amazon has a much larger user base, a mature distribution network with Prime shipping, and the resources and willingness to wage a prolonged battle. Etsy has relaxed some of its product policies and there has been a rise in counterfeit or mass-manufactured goods on the site, which is angering sellers.

The post-IPO hype may be wearing off, but the competitive realities are here to stay.

The article Why Etsy, Inc. Shares Plunged 31% in August originally appeared on Fool.com.

Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns and recommends Amazon.com and owns shares of Etsy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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