Etsy stock dropped sharply on Tuesday, marking a pullback from a nearly 16% surge on Monday. The volatility comes as Wall Street sized up the impact of the e-commerce firm's new partnership with ChatGPT creator OpenAI.
OpenAI on Monday announced a new product called Instant Checkout, which allows ChatGPT users to purchase items from U.S. Etsy sellers without leaving the hit chatbot's interface. Etsy is the first partner, with OpenAI planning to soon integrate Shopify sellers as well.
Investors appeared excited at the idea of directly connecting Etsy to ChatGPT's estimated 700 million weekly active users. Etsy stock rocketed higher, with Shopify gaining a more modest 6%.
But analysts have advised caution in client notes following the news.
"We are encouraged to see Etsy adapting for agentic (commerce) and see this as a small potential gross merchandise sales driver," Morgan Stanley analyst Nathan Feather wrote to clients. "However, the roughly 16% move seems overdone and it's far less clear if agentic commerce is Etsy's friend or foe over the long-term."
On the positive side, Feather noted that ChatGPT is a fast-growing contributor of customer referrals for Etsy — with industry data showing referrals from ChatGPT convert to sales at a stronger rate than social media and online search. But there's an important caveat.
"OpenAI is not altering product rankings, which significantly constrains the upside, meaning while Instant Checkout may improve conversion, it is unlikely to generate incremental impressions," Feather wrote. He rates Etsy stock as equal-weight, or neutral.
Stifel analyst Mark Kelley similarly called the deal a "nice feature" for Etsy. But he cautioned that there will "certainly be more partners to come, since OpenAI's tech is open sourced."
Etsy Stock Pulls Back
Etsy stock fell more than 10% to 66.78 in midday trades. It has been a good year overall for Etsy stock, with a 26% year-to-date gain that is outpacing the S&P 500.
Of course, shares are still digging out from a deep slump that began late in 2021, as Etsy's sales boost from the pandemic began to wane. Etsy has touted AI as a tool it can use to unlock more sales by helping people find products from its millions of sellers.
In a blog post Monday, the company described the OpenAI partnership as "creating a new way to unlock the treasure chest of our sellers' unique, handcrafted and handpicked items to an expanded audience."
But Feather noted that its still "too early to tell" whether agentic commerce will provide a boost to Etsy. Agentic commerce refers broadly to tools that allow shoppers to fully automate the purchasing process using a chatbot and other methods.
"It's possible agents will be better able to explain why an Etsy listing may be worth a premium versus a cheaper, potentially lower quality item," Feather wrote.
But, the analyst added, there is also a risk that "if buyers no longer visit Etsy to make a purchase, it doesn't own the customer experience. This could reduce customer loyalty and make Etsy more dependent on agentic platforms for volume."
