Near $20 Per Share, Etsy's Competitive Advantage Is Already Priced In

In a report published Tuesday, Morgan Stanley analyst Brian Nowak maintained an Equal-Weight rating on Etsy Inc ETSY, while reducing the price target from $20 to $19, saying that 2Q results could reflect margin contraction and decelerating GMS [gross merchandise sales] growth. The two-year stacked y/y GMS growth estimates for 2Q15 and 3Q15 have been reduced from 73 percent to 71 percent. "Note that we are modeling a modest further slowdown in two-year GMS growth in 4Q:15 due to (in our view) limits on Etsy's ability to gain extra share of buyers' wallets (and grow GMS per buyer faster)," analyst Brian Nowak wrote. In the report Morgan Stanley noted, "In all, our new forecast assumes GMS per buyer grows at ~1.6% in 15' and 0.8% in 2016. We look for signals or strategies from Etsy on how the company intends to improve the growth rate of this metric given its importance to the company's earnings power and the multiple investors are willing to pay." Etsy enjoys a competitive advantage in the online unique goods space, Nowak pointed out, while adding that $34bn is spent on crafts every year, which "we see as Etsy's primary addressable market." Despite incremental marketing spend and customer acquisition costs, Etsy could achieve a long-term EBITDA margin of 18 percent in 2020, Nowak said, while adding that the positives appear to be "already priced in" the stock.