There's more to worry about at Etsy than just canceled internships

It's a weird time to be at Etsy — or not allowed to start there.

The Brooklyn-based marketplace for handmade, unique, and artsy goods — once known as one of the best places to work in tech — replaced its CEO and laid off 8 percent of its staff in early May.

Then this week, the company told some of its interns, scheduled to start within the next few weeks, that they wouldn't have jobs for the summer. Even worse, the company rescinded at least one full-time job offer it made to a Class of 2017 graduate last fall, people with knowledge of the situation said. An Etsy spokesperson confirmed that the company scaled back its internship program but said they didn't cancel the program entirely. Etsy declined to comment on any full-time offers.

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Those decisions left many young engineers in the lurch — especially if they want to find work in New York, not San Francisco. Etsy will offer affected interns a one-time stipend, paying for housing and travel expenses that were promised. The company is also trying to find interns opportunities in the New York area.

But more than that, these decisions reflected the current state of Etsy.

"It's definitely a company in transition," said Sam Kemp, an analyst for the firm Piper Jaffray.

Etsy's shares are hovering above $13—below the $16 per share the company enjoyed when it debuted on the stock market in 2015. With its executive shakeups, a struggling market value, and bloated costs — at least according to Wall Street — Etsy is facing challenges.

The marketplace faces competition from Amazon and eBay, which are both devoting more resources to handmade, Etsy-like goods. With a broader customer base than Etsy, those companies pose a real threat. Just this week, Amazon launched a shop for handmade wedding goods that competes with one of Etsy's core categories.

While the layoffs and rescinded offers look bad from the outside, the cost-cutting was good news to investors who wanted Etsy to scale back its spending.

"Layoffs can be a bad sign — they can signal systemic trouble," Kemp said. "But in this case it was probably more welcome than anything."

So as Etsy works to figure out its next steps — layoffs alone won't be enough to get the company back on track — staff, sellers, and investors will anxiously await the company's new direction. New CEO Josh Silverman has been upfront that he hasn't totally determined his vision for the marketplace, Kemp said.

"There's definitely an element of optimism — and uncertainty," Kemp said.