Here's Why Etsy Has 40% Upside

Citi’s Mark Kelley believes the consensus expectations for Etsy Inc ETSY, specifically with regard to seller services, are “far too conservative.”

Kelley initiated coverage of the company with a Buy rating and price target of $14.

Seller Services Underappreciated

The analyst mentioned that the estimates were 3 percent and 6 percent above the consensus forecasts for Etsy’s revenues for 2016 and 2017, respectively, “almost exclusively” driven by seller services.

“The biggest difference between us and the Street comes in 4Q15, where consensus is looking for a deceleration of year on year growth of roughly 20 percent compared to our 11 percent,” Kelley stated.

Related Link: Etsy's Payment Processor Finally Takes Responsibility For Service Outages

The analyst explained that the tougher comps for direct checkout, expected for 4Q, has also been accounted for adequately in the estimates, and that the consensus forecasts are likely to be reset higher through the remainder of the year.

In addition, Kelley pointed out, “Etsy has made steady progress expanding its take rate as sellers adopt its additive Seller Services products. We expect this to continue as new products are offered and as existing ones are enhanced, driving further adoption.”

GAAP Profitability

Also, the analyst expects the company to deliver consistent GAAP profitability by 2018 at the latest, while viewing Etsy’s long-term targets as “more than achievable.”

At the same time, Kelley noted that expecting GAAP profitability in 2018 could prove to be a conservative timeline.

At time of writing in Monday's pre-market session, Etsy was trading at $10.36, up 2.98 percent.

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