Etsy On Path To Fall All The Way Down To $9

After posting worse than expected numbers for the first-quarter, Etsy Inc ETSY yet again did the same for the second-quarter on Tuesday. The company reported EPS loss of $0.07 on revenue of $61.4 million, analysts had expected it report EPS loss of $0.04 on revenue of $59.54 million. Although the revenue came above expectations, they were fueled by growing expense mostly on advertising.

Gil Luria, Wedbush Securities analyst, who has an Underperform rating on the stock with a $9 price target was on CNBC recently to weigh in on Etsy number and share his outlook for the company.

Won't Be Able To Justify 70 Times EBITDA Multiple

Luria  was asked whether there was anything in Etsy results that changes his view on the stock. He replied, "No, not at all. In fact their volume growth decelerated again to 24 percent, it was 39 percent just two quarters ago. Revenue is going to decelerate this much pretty soon and to get that 23 percent volume growth they had to increase marketing by 77 percent."

"So...they are increasing expenses at a much higher rate than their revenue growth and that's not sustainable and pretty soon their revenue growth is going to decelerate and they won't be able to justify what is now a 70 times EBITDA multiple."

Amazon Will Take Away Sellers

On what happens if the company doesn't go back to selling handmade and vintage goods, Luria said, "If they don't go back to basics to just handmade and vintage goods Amazon is going to have a tremendous amount of success taking away customers from them and mostly taking away sellers."

He continued, "Sellers just want to sell next to other handmade goods sellers and on Etsy right now they are selling next to mass manufacturers, next to lot of counterfeit goods and Amazon Handmade is going to give those sellers a much better option."

Collapse Is Imminent

Luria was also asked wouldn't from an investors' point of view just sticking to selling handmade goods would be bad strategy for Etsy. He replied, "Well they will take a step back, but then the growth will be sustainable. Right now all their growth isn't sustainable, they are buying it basically by buying Google AdWords, they are buying it by introducing supply which shouldn't really be on Etsy in the first place. Sooner or later that's going to collapse."

At the time of this writing, Etsy shares were trading down 20.9 percent in pre-market trading.