On Thursday, Barclays maintained an Equal-weight rating on Etsy (NASDAQ: NASDAQ:ETSY) but reduced its price target to $55 from the previous $60.
The adjustment follows Etsy's third-quarter Gross Merchandise Sales (GMS) reporting, which fell short of consensus estimates by 2%. Despite the lower GMS, Etsy's consolidated revenues and EBITDA surpassed expectations by 1% and 3%, or $6 million, respectively. This outperformance was attributed to a favorable take rate and reduced product development costs.
The company's guidance received a mixed interpretation as GMS is anticipated to slightly improve due to easier comparisons. However, Etsy has not met forecast expectations in two of the last three quarters, underscoring the current challenging environment for discretionary spending.
Barclays highlighted that while some of Etsy's challenges are self-imposed, they are part of a strategy to better curate and differentiate the platform for future benefits. This includes eliminating common products, refining search capabilities, and prioritizing app installs, which yield 40% higher lifetime spend from users.
Barclays' analysis suggests that consensus revenue and EBITDA estimates for Etsy are likely to increase following the company's latest results. However, the firm indicated that Etsy's shares might continue to be out of favor with investors until there is clearer evidence of a recovery in GMS.
The analyst's commentary reflects the view that while Etsy faces macroeconomic challenges, the company's strategic decisions are intended to strengthen its market position when discretionary spending rebounds, even though it may contribute to near-term declines.
In other recent news, Etsy reported a mixed third-quarter performance for 2024 amid challenging macroeconomic conditions. The online marketplace's Gross Merchandise Sales (GMS) saw a year-over-year decline of 4.1% to $2.9 billion, with the Etsy marketplace experiencing a 6% drop.
Despite this, Etsy's revenue rose by 4.1% to $662 million, supported by an increased take rate and a solid adjusted EBITDA margin of approximately 28%. Active buyer levels remained solid at around 91 million, indicating resilience in its consumer base.
Additionally, Etsy introduced physical gift cards and improved customer experience features, with Depop showing strong performance, particularly in the U.S. market. On the downside, the active seller count decreased to 6.2 million, an 8.5% decline from the previous year, and GMS per active buyer also saw a slight decrease to $123.
Looking ahead, Etsy anticipates a low to mid-single-digit decline in GMS for Q4 2024, with a take rate estimate of 22.3%.
These recent developments underscore Etsy's strategic adjustments and product enhancements designed to navigate through a period of economic slowdown. While GMS has seen a decline, the company's revenue growth and stable active buyer count indicate a robust business model capable of weathering market fluctuations.
InvestingPro Insights
Etsy's recent performance and strategic decisions align with several key metrics and insights from InvestingPro. The company's market cap stands at $5.51 billion, reflecting its significant presence in the e-commerce space. Despite recent challenges, Etsy maintains impressive gross profit margins of 70.78% for the last twelve months as of Q2 2024, supporting an InvestingPro Tip that highlights the company's "impressive gross profit margins."
The current P/E ratio of 19.87 and the adjusted P/E ratio of 17.58 for the last twelve months as of Q2 2024 suggest that Etsy is trading at a relatively moderate valuation. This is further emphasized by an InvestingPro Tip indicating that Etsy is "trading at a low P/E ratio relative to near-term earnings growth," which could be attractive for value-oriented investors.
However, the stock's recent performance has been challenging, with a 3-month price total return of -26.33% and a 6-month return of -30.12%. This aligns with another InvestingPro Tip noting that the "stock has taken a big hit over the last six months." Despite these short-term headwinds, Etsy remains profitable, with a basic EPS of $2.41 for the last twelve months as of Q2 2024.
For investors seeking more comprehensive analysis, InvestingPro offers 13 additional tips on Etsy, providing a deeper understanding of the company's financial health and market position.
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