Shares of Etsy (NASDAQ:ETSY) are up 3% in todays trading session despite a move by Loop Capital Markets analyst Laura Champine to downgrade the stock rating to Hold from Buy.
The analyst also lowered sales estimates for this and next year to more reflect the consensus view among analysts. This has resulted in a new price target of $140.00 per share, down from the prior $185.00.
Though ETSY beat expectations last quarter, we think the macroeconomic environment has materially worsened since our last note in late February. We now expect 15% GMS growth this year, down from our prior estimate of 19%. We have GMS (NYSE:GMS) targeted to grow 20% over the longer term, compared to our prior estimates of 25% (which were above managements long-term outlook). Our earnings estimates were already below consensus, but we are lowering them today on additional inflation in digital advertising. We are hearing from several consumer companies of digital marketing inflation in the 20-40% range. The consumer is distracted, pushing up CAC more than inflation, Champine wrote in a client note.
Another reason why the analyst downgraded Etsy is the fact that she sees potential for negative near-term catalysts.
We see significant risks to expectations for sales and profitability this year, and our new estimates may prove aggressive barring an easing of inflation.
Despite these near-term challenges, the analyst remains positive on the long-term outlook for the ETSY stock.
We believe in the long-term growth potential given the differentiated offerings, brand equity, and improving search functionality Etsy offers, the analyst concluded.
By Senad Karaahmetovic