Wedbush: Only Hope For Etsy Investors Is If The Company Goes 'Back To Basics'

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Etsy Inc ETSY came out with disappointing first quarter numbers post-market closing on Tuesday

Gil Luria of Wedbush Securities was on CNBC recently to discuss why the company failed to meed investors and analysts’ expectations and what it needs to do to get back on track.

Not ‘Pure’ Anymore

“I think that Etsy a couple of years ago still had a pure, handmade and vintage good marketplace,” Luria began. “But in order to accelerate growth into the IPO, they introduced manufactured goods, which brought with it mass manufactured goods. So, some seller buying 1,000 earrings for $0.05 on Alibaba and reselling them on Etsy for $20 and they have also been fairly lax on preventing copyright and trademark infringement on the platform.”

Marketing Expenditures

He continued, “They have also invested more in marketing and I think the disappointment yesterday really had more to do with that. The fact that they are investing more in marketing, margins are getting compress and yet revenue is still decelerating anyway. So, long term that’s not a sustainable formula for growth.”

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Least Likely To Get Bought

Luria was asked if there is a possibility of Etsy being an acquisition target. He replied, “I think it’s one of the least likely companies to get bought in my space at least. eBay and Amazon, who would be the two potential buyers have all the buyers and most of the sellers already. So, they don’t really need to buy Etsy. So, that’s not a way out.”

Going Back To Basics

“I think the way out for Etsy is to go back to basics. It’s to go back to what made them special the handmade, the vintage, the ethos that they had around social responsibility. They really strayed away from that by allowing manufactured goods and by not cracking down on counterfeit. It’s frustrating their sellers and its deluding their brand to buyers,” Luria concluded.

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Posted In: Analyst ColorCNBCAnalyst RatingsMediaGil LuriaWedbush
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