Etsy Stock: Short-Term Pain, Long-Term Gain

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Etsy marketplace platform provider (NASDAQ: ETSY) has already begun to face headwinds from worried consumers. Evercore ISI analyst Shweta Khajuria observed that consumer confidence has declined in the top five markets in which Etsy operates, particularly in Western Europe, where confidence has fallen to its lowest level in more than seven year.

In the second quarter of this year, the company saw a 4% drop in domestic monthly active users (MAUs) and a 1% drop in global MAUs on a year-over-year basis. Additionally, Khajuria also predicts near-term risk for Etsy, as the company’s revenue is significantly dependent on consumers’ discretionary spending.

Specifically, Etsy’s six main categories, namely Home Goods & Furnishings, Jewelry & Personal Accessories, Apparel, Craft Supplies, Paper & Party Supplies, and Beauty and personal care; generated 77% of its revenue in 2021. These categories are expected to face a slowdown in sales in the second half.

Additionally, Khajuria noted that an exclusive survey of US online shoppers conducted by Evercore showed a drop in consumer confidence, making the analyst concerned about the company’s near-term prospects.

“22% of our respondents said they plan to spend more on Etsy in the next 6-12 months (compared to 27% last year). Additionally, 65% of respondents said they were “extremely or very” satisfied with Etsy, the lowest level in four years. Finally, 58% of respondents expect their retail spending over the next 6-12 months to be lower as a result of rising inflation,” Khajuria explained.

These points prompted the analyst to cut ETSY’s price target for the next 12 months to $95 from $130.

Etsy’s Long-Term Catalysts

Nonetheless, several positives were also highlighted in the research rating, leading the analyst to maintain a Buy rating on the company.

Khajuria pointed out that website traffic trends for Etsy and its Amazon counterpart (AMZN) has proven to be the most resilient in the area of ​​e-commerce. Despite a decline in MAU in Q2, trends were much better than Walmart peers (WMT), Target (TGT), and eBay (EBAY).

10% of Etsy customers who took the survey spend more than $800 a year on the platform, and 25% shop on Etsy two to three times a month. Both of these numbers were higher than last year, making the analyst optimistic about the platform’s loyal customer base.

Additionally, Etsy serves a total addressable market (TAM) of $1.7 trillion, with online sales of $250-300 billion. This means that Etsy has plenty of room to grow and the business is well positioned to grow thanks to its dedicated customers.

The Taking of Wall Street

Wall Street is cautiously bullish on Etsy, with a Moderate Buy rating based on 12 purchases and six reservations. The average price target for Etsy is currently $119.88, implying 50.2% upside potential.

Final thoughts – There is hope

As weakening macro trends lead to slower retail demand, Etsy has a tough road ahead. However, the road may get easier eventually, as Etsy has a loyal customer base and a large target market. Most analysts covering the stock remain optimistic despite the macroeconomic headwinds.

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