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Anna Andreeva of Needham & Company downgrades Etsy, Inc. (NASDAQ:ETSY) to “Hold” from “Buy” Monday and removes her price target on the shares (previously, $150) on worsening near-term macro-outlook, but reiterates a positive long-term view of the company.
Laying out a pessimistic near-term picture for the e-commerce giant, the analyst highlights the deteriorating state of the economy and believes the company may yet to experience its full effects: “the near-term discretionary nature of the ETSY model increasingly at risk.”
She points to company’s 2022 guidance, and “expectations for 2H22 GMS improvement” but notes that those “are predicated on no change in the macro” – the analyst cites the recent miss on retails sales targets in May and eroding consumer sentiment in Europe as key evidence the macro situation is growing worse. The report further highlights rising inventories at major retailers and notes they “could make the company’s value prop less compelling.”
Needham thus lowers “’22/’23 GMS ests. below consensus” and highlights that “with no further tax attributes remaining, effective tax rate could swing to 15%-17% in ’23”, citing those near-term pressures as key reasons for the downgrade.
Longer-term, the analyst maintains a more upbeat tone: “We like ETSY’s unique business model that in the last few years has gone from a niche e-commerce marketplace to a top-of-mind shopping destination across numerous categories, demographics and geographies”, and continue to view “ETSY as unique with a big opportunity to drive frequency for both buyers and seller.”
Shares of ETSY closed at $83.62 on Friday, down over 60% YTD and close to 80% from November 2021 all-time-high of $307.75.
