Etsy Upgraded At Wedbush; Stock No Longer An Underperform

• Etsy Inc ETSY shares have lost 50 percent since July 20, having plunged from above $20 to below $13 in August.
• Wedbush’s Gil Luria upgraded the rating on the company from Underperform to Neutral, while maintaining the price target at $9.
• Following the sell-off over the last six months, the company’s shares now reflect the risks more appropriately, Luria said.

Analyst Gil Luria mentioned that growth is likely to decelerate, with marketing spend delivering declining yields. Moreover, sellers appear “frustrated by mass manufactured and potentially counterfeit competition, leading them to switch to Handmade at Amazon as large VC owners sell their shares.”

Etsy’s shares are down 65 percent over the last six months, as compared to a 3 percent decline in the S&P 500. The company’s shares lost 20 percent in the last three weeks, versus an 8 percent gain in the S&P 500. Following this significant pullback, “we believe these risks are more appropriately reflected in the share price,” Luria stated.

In the report Wedbush noted, “We believe Etsy will maintain its revenue growth trajectory in Q3 as increased marketing spend drives increased site traffic.” The revenue estimate for the quarter is $68 million, representing 44 percent growth. The adjusted EBITDA estimate is at $6.8 million.

“Traffic continued to grow for the first two months of the quarter, which we believe was fueled by even higher marketing spend,” Luria wrote, adding, “We further believe the company is pursuing short-term boosts at the expense of long-term results.”