Monness Crespi: Sell Etsy

• Shares of Etsy, Inc. ETSY have declined 55.57 percent over the last six months, from the high of $30 on April 16
• Monness Crespi analysts have initiated coverage of Etsy with a Sell rating and price target of $10.
• Given the near term risks, the analysts would prefer to wait for the risk-reward profile to turn more favorable before entering the stock.

According to the Monness Crespi report, there are several areas of concern, such as the rising marketing spend, driven by the increasing cost of acquiring buyers. The analysts believes that “as marketing spend edges higher, it may have to climb at a faster rate than expected in order to re-accelerate growth in buyers”

While Etsy’s gross margin has been witnessing tailwinds from faster growing products, the launch of new services could lead to some downward pressure.

Also, with Amazon.com, Inc. AMZN now being an official part of this lucrative market, the ability to grow both wallet and mind share would become tougher as the competition intensifies.

The analysts also mentioned that “three phases of lock-ups are slated to expire between October 2015 and April 2016 representing about 90 percent of the outstanding shares.”

Lastly, Etsy’s stock is currently trading at a premium to its peers, despite the company’s profitability and growth rates being similar to that of the peer group.