Etsy's Strategic Layoffs Signal Short-Term Struggles with Hope for Future GMS Growth, Analysts Say

Wednesday, Etsy Inc ETSY announced to lay off roughly 11% of its marketplace workforce as the e-commerce site grapples with a slowdown in consumer spending and increased competition from competitors like Shein and Temu. 

Etsy expects to incur approximately $25 million to $30 million in charges, primarily in the fourth quarter of 2023.

Wedbush's analysis suggests that the recent announcement about reducing the workforce indicates the company's anticipation of limited improvement in its topline performance for 2024. 

This decision is viewed as a prudent measure by Wedbush, considering the company's constrained visibility regarding when demand trends might shift. Particularly concerning are the competitive pressures from Chinese online retailers aggressively vying for market share, escalating advertising costs to unsustainable levels within specific online advertising sectors. This intensification further strains spending on non-essential durable goods.

While acknowledging the cautionary stance adopted by the company, Wedbush expresses less optimism concerning the projected gross merchandise sales and potential sales growth for 2024. Despite immediate growth challenges, Wedbush maintains a favorable view of ETSY's long-term growth prospects, citing the uniqueness of its marketplace that is challenging to replicate.

The analyst maintains a Neutral rating but raises the price target from $60 to $90, acknowledging the intrinsic growth potential despite short-term hurdles.

Raymond James maintains an optimistic Outperform rating despite limited visibility in the near term, anticipating a return to GMS growth in 2024 due to more favorable comparisons. The analyst raised the price target from $70 to $90, aligning with heightened EBITDA estimates for 2024 and recent expansions in the peer group multiples.

The optimistic forecast for ETSY revolves around several factors: the company's advantage from international market expansion, easier U.S. comparative statistics, continual enhancements in operational efficiency, and advancements made at Depop. 

KeyBanc, with a Sector Weight rating, revised its FY24 revenue and adj. EBITDA estimates to $2.91 billion and $798 million, respectively, from $2.96 billion and $801 million, respectively, slightly tempering expectations for growth as macro headwinds persist.

Price Action: ETSY shares are down 2.42% at $81.94 on the last check Thursday.

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