Etsy Regains Margin Flexibility After the Depop Divestiture, but Growth Reacceleration Still Requires Validation

Overview

Following the completion of the Depop divestiture, Goldman Sachs resumes coverage of Etsy Inc. with a Neutral rating. The report frames the investment case around three key debates: growth reacceleration, margin expansion during an investment cycle, and competitive positioning amid the rise of agentic shopping. The firm sees recent improvement in buyer trends, the Depop exit, and AI-driven discovery and matching capabilities as positives; however, persistently weak active-buyer growth, high churn, and unproven returns on growth investments support a cautious stance.

Core views

First, the contribution of strategic initiatives to revenue growth remains in the validation stage: active buyers recovered in 1H26, but the durability of the improvement remains unclear. Second, margin expansion has greater visibility: the Depop divestiture, improved monetization, and operating leverage may offset continued reinvestment. Third, Etsy's non-standardized and unique merchandise supply, together with structured product data, positions it to benefit from high-intent traffic and agentic shopping driven by AI/LLMs.

Analysis framework

The report assesses growth drivers using company disclosures on buyer segmentation, purchase frequency, GMS per buyer, and app data; analyzes margins through the post-divestiture cost structure, monetization, and marketing investment; and derives the price target from equal weighting of EV/GAAP EBITDA and a modified DCF.

Methodology notes

• Valuation methodsRelative Valuation

  EV/GAAP EBITDA

  Applies a 12x EV/EBITDA multiple to NTM+1 GAAP EBITDA, modestly below the low end of the company's approximately 13x–16x historical range over the past two years.

• Valuation methodsModified Discounted Cash Flow Method

  EV/(FCF-SBC)

  Applies a 12.5x EV/(FCF-SBC) multiple to NTM+4 FCF-SBC and discounts it for three years at a 12% discount rate based on CAPM assumptions.

• Operating AnalysisBuyer Cohort Analysis

  New buyers, reactivated buyers, repeat buyers, and high-frequency buyers

  Breaks down buyers by type, purchase frequency, and GMS per buyer to identify the sensitivity of GMS to retention, frequency, and average order value.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ETSY.US

  Covered Company

  Strengths

  Unique and non-standardized merchandise supply, the contribution of high-value high-frequency buyers to GMS, rising mobile penetration, post-Depop-divestiture margin improvement potential, and potentially high-converting traffic from AI/LLM discovery channels.

  Weaknesses

  Active-buyer growth has been broadly weak since 2022, with elevated churn in 2025; app time spent has declined, and the path to reaccelerating revenue growth has not been fully validated.

  Comparison

  Relative valuation applies 12x NTM+1 EV/GAAP EBITDA, at the low end of the company's approximately 13x–16x historical range over the past two years; the modified DCF applies 12.5x NTM+4 EV/(FCF-SBC).

  Risks

  Weak discretionary consumer spending, slower-than-expected e-commerce growth, intensified competition, insufficient returns on marketing investment, and rising buyer and seller churn.

Key data

• Rating and Price TargetNeutral; 12-month price target of $89.00Based on a current price of $79.90 and potential upside of 11.4%.
• 2025 Adjusted EBITDA Margin25.5%Management guided to an FY26 margin of 29%–30%.
• 2031 Adjusted EBITDA Margin ForecastApproximately 32%Driven by the Depop divestiture, improved monetization, and operating leverage.
• 2025 Buyer Churn RateApproximately 63%Goldman Sachs estimates approximately 54 million active buyers churned during the year, while active buyers declined by a net approximately 3.1 million.
• 2025 High-Frequency Buyers5.9 millionApproximately 7% of active buyers, contributing approximately 40% of GMS.
• 2025 Average Active-Buyer GMSApproximately $121The average active buyer purchased on approximately 3 days per year.
• LLM Referral Growth15x growth in 2025 versus 2024The current base is small, but management stated this traffic converts at a higher rate than traditional media referrals.
• 2026E Revenue$2.824 billionGoldman Sachs forecasts a 2.1% year-over-year decline, followed by 5.1% growth in both 2027E and 2028E.

Impact & implications

For investors, the Depop divestiture reduces the drag on margins and increases capital-allocation flexibility, making earnings improvement an important valuation support; however, further share-price upside will require evidence that strategic investment is translating into sustained improvement in active buyers, purchase frequency, and GMS. Key areas to assess are high-value buyer retention, mobile engagement, marketing efficiency, and whether incremental conversion from AI channels can evolve from early signals into sustainable growth.

Risks

• Discretionary consumer spending recovers more slowly than expected or weakens further.
• E-commerce industry growth falls short of expectations, or competitive intensity increases.
• Investment in product, search, personalization, and loyalty programs fails to generate sufficient growth in buyers, frequency, or conversion.
• Marketing efficiency and returns on investment are below expectations.
• Buyer or seller engagement falls short of expectations, with churn exceeding expectations.
• AI/LLM referrals are growing rapidly, but their scale, monetization contribution, and durability of conversion remain uncertain.

What to watch

• Quarterly changes in net active-buyer additions, reactivated buyers, new buyers, and high-frequency buyers.
• Purchase frequency, average order value, and GMS contribution from repeat and high-frequency buyers.
• Trends in mobile-app GMS mix, session counts, downloads, and time spent.
• Quantifiable returns from product initiatives such as search, discovery, personalization, Gift Mode, and Etsy Insider.
• FY26 margin execution, marketing-expense leverage, and realization of cost savings following the Depop divestiture.
• The scale and conversion rate of traffic from LLM and agentic platforms, and its actual contribution to platform monetization.