Why Etsy Stock Sank by Over 8% on Monday

Key Points

• An export loophole that benefited the company is about to be closed.

• This is the “de minimis” exemption, which had been a boon to customers making small purchases from foreign sellers.

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The end of an advantageous purchasing loophole is putting a damper on shares of Etsy (NASDAQ: ETSY). The crafting site suffered a more than 8% decline in its stock price on Monday as that curtain is expected to come down later this week. By comparison, the bellwether S&P 500 index was nearly unscathed as it declined only 0.4%.

Bye, bye de minimis

That loophole is the de minimis exemption under which goods imported into the U.S. are exempted from taxes and tariffs if a shipment of them is worth under $800. At the end of July, President Trump signed an executive order eliminating de minimis, effective this coming Friday, Aug. 29.

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As Etsy is an online marketplace and therefore spans numerous geographies, its fundamentals are likely to be affected by this move and not in a positive way. A great many of the sellers on its site craft small, relatively inexpensive items, and being subject to tariffs threatens to make such transactions prohibitively pricey.

Etsy is trying to get ahead of this somewhat. Last week, it attempted to comfort its sellers with a page on its website titled “Navigating Evolving Global Tariff Policies” in which it suggested best practices in the wake of de minimis’s demise.

Minimum or maximum effect?

The new tariff regime is surely going to hurt revenue and other key items in Etsy’s finances, but just now it’s unclear by how much. Hopefully, management will provide some data or statistics on this in its coming earnings releases; in the meantime, market players might find it wise to tread carefully around the stock.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Etsy. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.