Shares of online marketplace Etsy (NASDAQ: ETSY) jumped 5.11% in the pre-market session after Wolfe Research upgraded the stock's rating from Peer Perform (Neutral) to Outperform (Buy) and assigned a price target of $100. The price target indicates a potential 55% upside from where shares were traded when the upgrade was announced. This upgrade comes in light of recent underperformance and compression in the stock's valuation multiple since the beginning of the calendar year 2023. Despite concerns over inflation and high interest rates impacting consumer spending, Wolfe Research anticipates an improvement in ETSY's growth prospects in the coming quarters.
During a conference hosted by Goldman Sachs on September 6, 2023, Etsy's management addressed the macroeconomic challenges impacting their business. They acknowledged the presence of significant macro headwinds, particularly affecting buyers with lower household incomes. However, despite these challenges, Etsy highlighted some metrics suggesting that trends are improving. The company emphasized the positive growth in active buyers reported during the Q2'2023 earnings and pointed to improving indicators of buyer frequency, such as GMS per buyer. Etsy noted, "Things are trending in the right direction in spite of heavy macro headwinds." After the initial pop the shares cooled down to $66.05, up 2.32% from previous close.
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What is the market telling us:
Etsy's shares are very volatile and over the last year have had 27 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was four months ago, when the stock dropped 8.62% on the news that the company reported first-quarter results that exceeded analysts' gross merchandise sales, revenue, and earnings per share (EPS) expectations. Buyer growth was also strong and above Consensus, with management seeing "positive trends in our first quarter 2023 buyer data, particularly the return to year-over-year growth in the Etsy marketplace's active buyer base". One negative is that free cash flow in the quarter missed. Additionally, gross merchandise sales guidance for next quarter was roughly in line while revenue guidance was below Consensus. Overall, it was a mixed quarter with management highlighting an uncertain macro.
Etsy is down 41.9% since the beginning of the year, and at $66.05 per share it is trading 55.4% below its 52-week high of $148.20 from February 2023. Investors who bought $1,000 worth of Etsy's shares 5 years ago would now be looking at an investment worth $1,250.
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