Sometimes the best recipe for a stock rally is mixing good news with a crowded short position. That's what happened Thursday when Etsy Inc. (ETSY) paired a major asset sale with solid earnings, sending shares soaring more than 21% and likely forcing short sellers to scramble.
The online marketplace delivered a double dose of positive developments: a $1.2 billion agreement to sell fashion resale platform Depop to eBay Inc. (EBAY) and fourth-quarter earnings that exceeded Wall Street expectations. With more than a fifth of the company's public float sold short, the news created the perfect conditions for a squeeze.
The Earnings Picture
Etsy reported fourth-quarter earnings per share of 92 cents, comfortably beating the analyst consensus estimate of 85 cents. Quarterly sales came in at $881.64 million, representing 6.6% growth year-over-year when excluding Reverb. That figure landed just shy of the Street estimate of $884.90 million, but close enough not to dampen enthusiasm.
On an as-reported basis, including Reverb's fourth-quarter 2024 revenue of $24.9 million, consolidated revenue climbed 3.5% year-over-year.
Marketplace Momentum and Metrics
For the core Etsy marketplace, gross merchandise sales reached $3.29 billion, essentially flat with a 0.1% increase year-over-year and down 1.0% on a currency-neutral basis. Mobile continues driving growth, with GMS transacted through the Etsy App up 6.6% year-over-year, now representing roughly 46% of total GMS.
The take rate hit 24.5%, boosted by strong performance in consolidated on-site advertising. That's the good news. The user metrics tell a more cautious story: active buyers declined 3.4% year-over-year to 86.5 million, while active sellers dropped 1.5% to 5.6 million.
Profitability remained solid with gross profit gaining 1.5% to $644.09 million. Adjusted EBITDA came in at $222.46 million, down 11.2% from the prior year, translating to an adjusted EBITDA margin of approximately 25.2%, down 420 basis points.
The balance sheet looks healthy, with Etsy ending the quarter holding $1.8 billion in cash, cash equivalents, and short- and long-term investments. During the quarter, the company put its buyback program to work, repurchasing approximately $133 million worth of stock, or 2.3 million shares.
The Depop Deal
On Wednesday, Etsy announced it had struck an agreement to sell Depop to eBay for $1.2 billion in cash. The transaction is expected to close in the second quarter of 2026, pending standard closing conditions.
The company plans to deploy the proceeds strategically: general corporate purposes, continued share repurchases, and investments in its core marketplace. Until the deal closes, Etsy will continue operating Depop, though the subsidiary's financial results will be classified as discontinued operations starting in the first quarter of fiscal 2026.
Looking Ahead
Management guided fiscal first-quarter 2026 GMS to a range of $2.38 billion to $2.43 billion, with an adjusted EBITDA margin of roughly 28% to 30%. For the full fiscal year 2026, the company expects slight year-over-year GMS growth with positive comparisons in each quarter and an adjusted EBITDA margin roughly consistent with first-quarter guidance.
The Short Squeeze Factor
Here's where things get interesting. Etsy had a short float of 14.69 million shares, representing 21.27% of its publicly traded float of 69.06 million shares. That's a substantial bearish bet, and when positive news hits a heavily shorted stock, the mechanics can amplify the move. Short sellers need to buy shares to close their positions, and that buying pressure feeds on itself, pushing the stock higher and forcing more shorts to cover.
The combination of the Depop sale, earnings beat, and elevated short interest created the perfect storm for Thursday's rally. Etsy shares traded up 21.70% at $53.60 during premarket trading Thursday.
