On Friday, Piper Sandler initiated coverage on Etsy (NASDAQ:ETSY) stock, the online marketplace known for handmade and vintage items, assigning a Neutral rating and setting a price target of $56.00.
The firm highlighted that Etsy's stock has seen a significant decline, dropping 30% year-to-date, and is trading at a 12x-13x EV/EBITDA multiple, which stands at multi-year lows. The new coverage comes as Etsy grapples with potential near-term challenges in discretionary spending.
The report suggests that investing in Etsy is currently a bet on the broader economic environment. Given the potential for increased pressure on discretionary spending, analysts believe the company's valuation multiple could face further decline. They noted that applying eBay (NASDAQ:EBAY)'s current 8-9x EV/EBITDA multiple to Etsy could result in a mid-$40s share price.
Etsy's management has decided to reinforce the platform's unique value proposition by focusing on its artisanal roots. A policy overhaul is being implemented to clearly communicate to both buyers and sellers which products are appropriate for the platform.
Although this is expected to impact only a small fraction of the seller community, it could exert some pressure on the number of buyers, sellers, and the gross merchandise sales (GMS).
Piper Sandler's projections for Etsy's gross merchandise sales (GMS) in 2025 are below the consensus, and they view the Street's expectations of a 3% increase in GMS for 2025, following an anticipated 2% decrease in 2024, as overly optimistic.
The firm also does not foresee margin expansion, as Etsy's efforts to enhance user growth and purchase frequency may lead to increased marketing expenditures, such as a push into paid social media advertising.
Additionally, the report mentions Etsy's recent workforce reduction by 11% last December and suggests that further cuts this year are unlikely, as management aims to maintain the company's strong productivity per employee.
With the search for a new CFO underway after Rachel Glaser's retirement announcement three weeks prior, Piper Sandler anticipates that the early outlook for 2025 might not be particularly strong.
In other recent news, Etsy, the online marketplace, has been the subject of some noteworthy developments. Truist Securities has maintained a positive outlook on Etsy, reiterating a Buy rating for the company's stock.
This endorsement is backed by an analysis of Etsy's Gross Merchandise Sales (GMS) data, which seems to be tracking as expected or slightly better up to a recent point.
In addition, Etsy reported mixed financial results for the second quarter of 2024. Despite a minor dip in GMS by 2.1% year-over-year to $2.9 billion, the company saw revenue growth of 3% to $648 million. The company also revealed that its CFO, Rachel Glaser, is set to retire, and a search for a successor is underway.
Etsy's adjusted EBITDA margin remained robust at approximately 28%, and the company is investing in various initiatives, including a buyer loyalty program, AI-enhanced search algorithms, and a marketing campaign. These recent developments reflect Etsy's ongoing efforts to bolster its customer experience and reinforce its brand.
InvestingPro Insights
As Etsy (NASDAQ:ETSY) navigates the current economic landscape, real-time data from InvestingPro provides additional context for investors considering the company's stock. Etsy's market capitalization stands at approximately $6.17 billion, reflecting the market's current valuation of the company. Despite recent pressures, Etsy boasts a robust gross profit margin of 70.78% over the last twelve months as of Q2 2024, showcasing the company's ability to maintain profitability in its operations.
InvestingPro Tips highlight that Etsy's management has been proactively buying back shares, indicating confidence in the company's value. Additionally, Etsy is recognized for its high shareholder yield, which could be an attractive factor for investors seeking companies with a potential return on investment through stock repurchases or other means. These insights are particularly relevant given Piper Sandler's neutral stance and the noted economic headwinds facing discretionary spending.
For investors looking for a deeper dive into Etsy's financial health, the platform's additional 13 InvestingPro Tips can offer further guidance. Notably, analysts have revised their earnings expectations downwards for the upcoming period, and the stock is trading near its 52-week low, which could signal a potential buying opportunity for long-term investors if they believe in the company's fundamentals and turnaround strategies.
For those interested in exploring these aspects further, additional tips are available at https://www.investing.com/pro/ETSY, providing a comprehensive analysis to help inform investment decisions.
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