Etsy (ETSY  ) operates a two-sided online marketplace that connects buyers and sellers. It primarily operates in the U.S. but has started expanding internationally. Since going public in 2015, the stock is up by nearly 5-fold. It's steadily grown as it's an e-commerce platform that offers a different experience than the dominant ones. Like many online companies, the stock really took off during the pandemic in terms of user growth, revenues, and stock price. And, now it's giving back some of these gains as people return to more normal behavior.

Inside the Numbers

In Q2, Etsy reported $0.68 in earnings per share, beating analysts' expectations of $0.63 per person. Last year, the company earned $0.75 per share, so there was a slight deceleration. More concerning, the company also decelerated from $1.14 per share in Q4 and $1 per share in Q1. This explains the negative reaction in shares.

Revenue also beat expectations at $528.9 million vs. $524.7 million in consensus expectations. This was a 23.4% increase from the previous quarter, another deceleration as revenue growth was above 100% in each of the last 4 quarters.

Etsy's results are similar to many e-commerce companies which are showing a slowdown in e-commerce sales. However, it's the most drastic example. And, there are some good reasons including the shutdowns and stimulus payments in Q2 of last year. Further, the economy's reopening meant that some spending would migrate to physical retail. Finally, Etsy maybe even more subject to these forces as its business essentially replaced farmer's markets, craft fairs, and antique shopping for many people when the pandemic hit. Given that these activities are just as social in nature as commercial, Etsy is more exposed to the economy reopening at least in the near term.

According to Etsy CEO Josh Silverman: "Etsy's second-quarter 2021 performance is quite remarkable when viewed in the context of how dramatically the world changed during the year-ago period. It is deeply gratifying to me and our entire team that we are able to report strong year-over-year growth, with GMS and revenue up approximately 13% and 23% respectively. In fact, excluding facemasks, which were an important driver of the prior-year period, second quarter GMS for the Etsy marketplace increased 31%."

In Q3, Etsy expects revenue between $500 million and $525 million, which would result in another deceleration to 13.5% revenue growth. This forecast also slightly fell short of analysts' expectations of $527.5 million in sales.

Stock Price Outlook

The pandemic was a boon for Etsy's business. And, now it's feeling the inevitable "return to normal". Just like comparing the performance of travel stocks in 2021 based on 2019 figures is a better comp, it may be necessary to compare Etsy's results on a longer-term timeframe as the pandemic's effects are smoothed over.

Going forward, we will see how much of the growth in Etsy's business will be sustainable rather than transitory. Given these uncertainties and Etsy's high multiples, investors should be patient and wait for more weakness before entering the stock.