Etsy's Long-Term Growth Prospects Strong But Near-Term Risks A Matter of Concern: Analyst

Wedbush analyst Seth Basham initiates coverage on Etsy Inc ETSY at a Neutral rating and a price target of $70.

The analyst believes in the company's long-term growth opportunities in the U.S. but sees near-term risks overshadowing the growth prospects.

The analyst notes that despite volatile demand, ETSY has kept most gross merchandise sales (GMS) and customer tailwinds related to this growth.

Although unit economies weakened, ETSY's investments in AI and Machine Learning can boost the platform experience and accelerate higher purchase frequency, says the analyst. 

Also, the analyst applauds ETSY's efforts to drive on-and offsite advertising product expansion and sees strong future growth prospects as the traffic environment normalizes.

However, the analyst hopes to turn more positive on ETSY shares until seeing one or more of the following: GMS per buyer growth, active buyer growth, slower customer acquisition cost growth, and visible benefits from ongoing product and personnel investments.

The analyst thinks ETSY can see additional pressure in the remainder of 2023 as a decline in website traffic signals downside risk in Q3. 

Also, the analyst believes increasing gas prices and the restart of federal student loan payments in October suggest incremental consumer discretionary spending pressure in Q4. 

The analyst estimates revenue and EPS of $3,010.8 million and $4.88 in FY23 and $3,029.4 million and $4.99 in FY24. 

Also Read: Etsy Got Punished For Being Cautious But It Needs To Work Harder To Preserve Its Human Touch Superpower

Price Action: ETSY shares are trading higher by 0.53% at $64.92 on the last check Monday.