Goldman Sachs Likes Etsy After Strong Year, Upgrades Stock To Buy

E-commerce platform Etsy Inc ETSY more than doubled in value throughout 2018 and Goldman Sachs sees further upside ahead as the Street is underestimating the company's prospects.

The Analyst

Goldman Sachs' Heath Terry upgraded Etsy from Neutral to Buy with a price target lifted from $46 to $54.

The Thesis

The bullish case for Etsy's stock stems from management's July decision to increase its fee collection from 3.5 percent on transactions excluding shipping to 5 percent including shipping, Terry said in a note.

The company said it will take 80 percent of the incremental revenue and reinvest it in the business and this move isn't reflected in the Street's 2019 estimates. Specifically, the FactSet consensus revenue estimate is 6 percent below what Goldman Sachs is modeling and EBITDA growth is 4 percent below Goldman Sachs' estimates.

Etsy is likely to beat consensus estimates in 2019 due to:

Acceleration in organic GMS growth from 530 basis points in 2018 to 750 basis points.
Continued margin expansion of 150 basis points in 2019 on top of 2018's 490 basis points expansion.
A $200 million share buyback program.