On Thursday, Loop Capital made a significant adjustment to its stance on Etsy (NASDAQ:ETSY), downgrading the online marketplace from Hold to Sell. The firm also revised the price target for Etsy's shares, reducing it to $50 from the previous $70.
The change in rating comes as Etsy faces challenges with its Gross Merchandise Sales (GMS), which have been on a decline without a clear turnaround in sight. The company's revenue growth has been slowing for the past five consecutive quarters, which raises concerns about its future performance.
Despite Etsy's increased marketing expenditure, which saw a year-over-year rise of $21 million in the first quarter, revenue only saw a marginal increase of $5 million. This disparity has contributed to the more bearish outlook from Loop Capital.
The company has expressed optimism that GMS growth will pick up as the year goes on. However, Loop Capital remains skeptical, suggesting that such expectations may be overly optimistic, especially as the company faces increasingly difficult comparisons in the second half of the year.
The new price target set by Loop Capital is based on a discounted NOPAT (Net Operating Profit After Tax) model, which takes into account the current trends and the company's financial health. Etsy's shareholders and potential investors will be closely monitoring the company's performance in the coming months, as the market reacts to these revised expectations.
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