Cricut, the maker of popular electronic cutting machines for crafters, reported a 9% year-over-year decline in second-quarter revenue, according to Morgan Stanley. The drop was driven by continued weakness in accessories and materials, the consumables that owners buy to keep using their devices. While user engagement held steady, the company's ability to turn that engagement into sales is still under pressure.
What's behind the sales slump?
Cricut's business model relies on a "razor-and-blades" approach: sell the machine at a relatively accessible price, then generate recurring revenue from accessories, materials, and subscriptions. That model works well when owners keep crafting and keep buying supplies. But in Q2, those add-on purchases were soft, according to Morgan Stanley's analysis.
The firm also noted that heavier promotions and lower average selling prices suggest Cricut currently has limited pricing power. In other words, the company may be discounting to move products, which can squeeze margins and signal weaker demand than the headline engagement numbers might suggest.
Management's outlook: new products and international growth
Despite the disappointing quarter, Cricut's management pointed to a brighter second half of the year. They highlighted upcoming new product launches and continued international expansion as potential catalysts. New devices or features could reignite interest among existing users and attract new ones, while overseas markets—where Cricut's penetration is still relatively low—offer room for growth.
However, investors have heard such promises before. The key question is whether new products will actually drive incremental sales of accessories and materials, or just shift demand from one product to another. International expansion also carries costs, including localization, marketing, and distribution, which could weigh on profitability in the near term.
What it means for investors
For everyday investors, Cricut's situation highlights the importance of looking beyond headline user metrics. Steady engagement is encouraging, but if users aren't spending on consumables, the company's recurring revenue engine sputters. The 9% revenue decline is a clear signal that the "blades" part of the model isn't firing on all cylinders.
Morgan Stanley's commentary also underscores the challenge of pricing power. When a company has to rely on promotions to move products, it often indicates that demand is price-sensitive or that competition is intense. That can compress margins and make it harder to invest in growth.
Investors should watch whether Cricut's new product pipeline can reaccelerate accessory sales and whether international markets contribute meaningfully to the top line. If those efforts succeed, the stock could recover; if not, the company may face continued pressure.
It's also worth noting that Cricut is not alone in facing these dynamics. Other consumer hardware companies, like Insulet and Capri, have recently trimmed their forecasts due to softer demand. The broader consumer environment remains cautious, and companies with discretionary products are feeling the pinch.
Morgan Stanley's note on Cricut comes as the firm also adjusts views on other consumer names, such as Wayfair and McDonald's, reflecting a mixed picture across the sector.
The bottom line
Cricut's Q2 results show that steady user engagement is not enough to offset weak consumable sales. The company's future hinges on its ability to convert its loyal user base into consistent spenders on accessories and materials, and to expand successfully overseas. Until that happens, investors may remain cautious about the stock's growth prospects.
