Etsy's First Downgrade: Wedbush Cuts To Underperform, Cites 'Counterfeit Risk'

In a report published Monday, analysts at Wedbush downgraded

from Neutral to Outperform. The price target was maintained at $14. The analysts expect the company to witness "rapid near-term growth," while reporting strong Q1 results on May 19. "Our research indicates as many as 2 million items on Etsy (>5 percent of all merchandise) may potentially be either counterfeit or constitute trademark or copyright infringement," the analysts said, while mentioning that "Etsy has become a go-to destination for counterfeits." Counterfeit infringements include items belonging to several popular designer brands. Sample of the high risk listings indicate that violations are likely to be 20 times more on Etsy than on

or

. However, the analysts believe that Etsy is unlikelky to be held directly liable for such infringements. If the company chooses to ignore these potential violations, it could adversely impact Etsy's brand among both sellers and buyers. "Brands increasingly pursuing sellers on Etsy could materially reduce listing fees and commissions. We believe a reduction in listing fees may be meaningful as they constitute as much as 20 percent of revenue," the analysts added.