Etsy Investments Could Hinder 2017 Performance

Blake Harper of Loop Capital maintained his Buy rating and $16 price target on Etsy Inc ETSY despite the share plunge following below consensus revenue outlook.

Etsy reported fourth quarter revenues and adjusted EBITDA 2 percent and 8 percent above the consensus, respectively. However, the company's 2017 revenue outlook of 20-22 percent growth was slightly below the consensus’ 23 percent.

In addition, full-year adjusted EBITDA margin view of 12-14 percent also came in below the Street view of 17 percent, mainly due to investments in marketing and product development.

“We believe the company's marketing investments should pay off given the improving payback period, and the product investments should augment an improving conversion across the platform,” Harper wrote in a note.

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Harper sees higher GMS growth as the company is getting increased returns on its investments in marketing and product development.

The analyst noted Seller Services grew 31 percent versus consensus of 29 percent. The unit would benefit from the recent launch of Shop Manager and the attach rate of new seller services over time.

“The imminent launch of Etsy Studio should help the company capture more of a large market ripe for online penetration,” Harper continued.

Meanwhile, Etsy upped its 3-year CAGR for revenue for 2018 to 23-25 percent from 20-25 percent, while maintaining its outlook for high teens percentage EBITDA margin by 2018.

At last check, shares of Etsy plunged 16.67 percent to $10.10.