shares are trading lower Monday after Needham analyst Anna Andreeva reduced her rating on the handicrafts marketplace to Hold from Buy, citing risks posed by a potential recession. If consumers retrench on spending, she warns, Etsy is likely to feel the consequences.
Etsy (ticker: ETSY) was off about 5.3% near midday on Monday. The stock is down more than 60% since the end of 2021.
Andreeva’s take is that the discretionary nature of many purchases on Etsy puts current financial estimates at risk. She says second-quarter financial results appear to be tracking in line with guidance, but adds that the company’s second- half view assumed no change in the macroeconomic environment, and things have worsened since Etsy posted its first-quarter results.
When Etsy disclosed those numbers, CFO Rachel Glaser had cautioned that the company was seeing “increasing headwinds related to broader macroeconomic issues,” but she also said that gross merchandise sales trends would improve in the second half “assuming macro trends do not export.”
Andreeva thinks that assumption has turned out to be too optimism. Etsy didn’t immediately respond to a request for comment.
The analyst notes that Etsy has been driving demand with discounting: There was a two-day 20%-off promotion last week, and a recent 30% discount offering to new buyers. She is modeling a 3% decline in gross merchandise sales this year, with a 3% rebound in 2023, but says the Street consensus for next year calls for 15% growth, a view she believes is too upbeat.
“Longer term, 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,” the analyst writes.
But she says that given the “primarily discretionary nature of the underlying demand and today’s pressures on the consumer both in the US and globally,” the business could remain under pressure.
She also sees declining subscriber trends. In the March quarter, active buyers grew 4.9% from a year ago, down from 17.7% in the fourth quarter. For the full year, she expects the total to shrink about 5% from 2021 levels.
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