Etsy's Q3 Traffic Trends Raise Concerns, To See Macro And Competitive Pressures Drive Downside Risk, Says Analyst

Wedbush analyst Seth Basham reiterates a Neutral rating on the shares of Etsy Inc ETSY with a price target of $70.

Etsy is slated to report its third-quarter FY23 earnings on Wednesday, November 1.

The analyst sees downside risk to Q3 consolidated GMS guidance (-2% to +3% y/y) and consensus forecasts (+0.7% y/y) based on decelerating core website traffic trends.

Based on Similarweb data, Etsy.com engaged website traffic decelerated through the quarter from +8% y/y in July, to only +1% y/y in August and to flat y/y in September, equating to 3% y/y growth in Q3 FY23 versus 5% y/y growth in Q2 FY23, writes the analyst.

The analyst’s negative view considers traffic and AOV benefits from a new company-funded promotion in September. 

Beyond Q3, the restart of Federal student loan payments in October, exhausted excess pandemic savings, and rising interest rates that could take another bite out of consumer discretionary spending, notes the analyst.

Further, geopolitical tensions could create another demand downdraft like the one seen at the onset of the Ukraine war, where ETSY noted decelerating GMS trends, adds the analyst.

The analyst expects ETSY will continue funneling incremental revenue from take rate expansion into product development and personnel investments while gross margin will see continued pressure from refunds associated with ETSY’s purchase protection program.

Though the analyst likes ETSY’s longer-term growth opportunities in the U.S. and abroad, and its unique marketplace is difficult to replicate, near-term risks linger.

Price Action: ETSY shares are trading higher by 0.18% at $65.02 on the last check Monday.