On Thursday, Cantor Fitzgerald initiated coverage on shares of Etsy (NASDAQ:ETSY), the online marketplace known for handmade and vintage items, assigning a Neutral rating with a price target (PT) of $50.00. The firm noted that while Etsy has been active with product launches recently, there has been minimal improvement in the company's fundamentals. This suggests potential structural challenges in scaling the business further.
The report acknowledges that Etsy is expected to maintain its profit margins and has the ability to use its cash flow for share buybacks, as well as to grow free cash flow (FCF) per share over the next two to three years. However, Etsy's performance has lagged, with shares falling behind the Nasdaq by 50 percentage points since the beginning of the year.
The analyst pointed out that the stock is currently trading at 21 times the forecasted GAAP earnings per share for the fiscal year 2025. Despite previous optimism regarding cost savings, the firm now emphasizes the importance of clear growth drivers for gross merchandise sales (GMS) as essential for the stock to outperform at its current levels.
The coverage initiation reflects a cautious stance, considering both the ongoing macroeconomic headwinds and the competitive pressures that are expected to continue affecting the company in the medium term. The new price target of $50 implies a 10% downside from current trading levels, suggesting that the firm sees limited potential for stock price growth in the near term.
In other recent news, Etsy reported mixed results for the second quarter of 2024. Despite a slight decrease in Gross Merchandise Sales (GMS) by 2.1% year-over-year to $2.9 billion, the company saw revenue growth of 3% to $648 million. Amid these developments, BTIG maintained a Buy rating on Etsy, highlighting the stabilization in order frequency as a positive sign. However, the firm also noted an increase in customer churn which may remain elevated in the next few quarters.
In contrast, Piper Sandler initiated coverage on Etsy with a Neutral rating, citing potential challenges in discretionary spending that the company might face. The firm's projections for Etsy's GMS in 2025 are below consensus, suggesting a cautious outlook. Truist Securities, on the other hand, reiterated a Buy rating on Etsy, backed by an analysis of the company's GMS data.
Etsy also announced the upcoming retirement of CFO Rachel Glaser, with a search for a successor underway. The company is investing in various initiatives, including a buyer loyalty program, AI-enhanced search algorithms, and a marketing campaign to bolster the customer experience and reinforce its brand.
InvestingPro Insights
As Cantor Fitzgerald initiates coverage on Etsy with a neutral stance, it's worth noting some key financial metrics and InvestingPro Tips that could provide a deeper understanding of the company's current position. Etsy's market capitalization stands at approximately $6.38 billion, reflecting the size and scale of the online marketplace. With a trailing twelve months P/E ratio as of Q2 2024 at 20.36, Etsy trades at a multiple that suggests investors are expecting some level of earnings growth. This is further underscored by a PEG ratio of 0.16 during the same period, indicating potential undervaluation relative to its earnings growth rate.
An impressive gross profit margin of 70.78% showcases Etsy's ability to maintain a strong profitability ratio, which is crucial for its financial health. Additionally, the company's cash flows have been robust enough to cover interest payments, providing some financial flexibility. This is complemented by the fact that Etsy's liquid assets exceed its short-term obligations, indicating a solid liquidity position.
From the perspective of InvestingPro Tips, two points stand out. Firstly, Etsy's management has been actively engaged in share buybacks, which can be a sign of confidence in the company's value proposition. Secondly, the company has a high shareholder yield, which could be attractive to investors looking for returns. While seven analysts have revised their earnings downwards for the upcoming period, it's important to consider the full picture provided by additional tips available on InvestingPro. For those interested in a deeper dive, InvestingPro offers a total of 12 tips for Etsy, which can be accessed at https://www.investing.com/pro/ETSY.
These insights, coupled with Cantor Fitzgerald's analysis, could help investors make more informed decisions regarding their positions in Etsy.
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