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On Wednesday, BTIG analyst Marvin Fong revised the price target for Etsy stock (NASDAQ: NASDAQ:ETSY) downward to $60 from $65, while still recommending a Buy. Fong’s analysis followed Etsy’s report of a challenging fourth quarter in 2024, with Gross Merchandise Sales (GMS) in the core marketplace declining by 8.6% and an overall decline of 6.8%. This performance fell short of the previously guided low single-digit to mid-single-digit (LSD-MSD) decline. According to InvestingPro data, Etsy maintains impressive gross profit margins of 71.2% despite these challenges, and analysis suggests the stock is currently undervalued.
Etsy’s first quarter guidance for 2025 did not offer much optimism, as GMS growth is expected to mirror the previous quarter’s pattern. Despite these results, Fong noted that the market may have anticipated Etsy’s weak quarter based on third-party data. Key performance indicators (KPIs) also signaled concern, with core Etsy.com active buyers dropping by 1.6 million from the previous quarter—the largest decrease since the company began reporting this metric. InvestingPro subscribers can access 10 additional key insights about Etsy’s performance, including detailed analysis of its cash flows, which currently show sufficient coverage of interest payments.
Etsy’s management has acknowledged that they diverted resources from projects that directly drive GMS growth to enhance site experience. These resources were redirected back to growth projects at the beginning of the year, making the company’s performance in the second quarter and the rest of the year critical for justifying this strategy. Etsy suggested that this shift in resource allocation could have cost hundreds of millions of dollars in potential GMS growth for 2024.
Adjusting for the current growth challenges, BTIG reset its 2025 GMS estimate to a 3.5% decline from a prior forecast of a 1.6% increase. Consequently, the firm’s revenue and Adjusted EBITDA projections for Etsy in fiscal year 2025 have been lowered to $2.82 billion and $764.1 million, respectively, from the previous estimates of $2.93 billion and $825.9 million. The new price target of $60 incorporates a 10x Free Cash Flow (FCF) valuation for the core Etsy.com business and adds value for Depop and Reverb, which are currently performing well.
While BTIG’s Fong acknowledged the absence of a clear catalyst that could swiftly transform Etsy’s business, he suggested that the company’s healthy FCF, low market expectations, reasonable valuation, and strong competitive position present a favorable risk-reward balance for investors, leading to the decision to maintain a Buy rating for Etsy stock. This assessment aligns with InvestingPro data showing a strong free cash flow yield of 12% and a current ratio of 2.39, indicating solid liquidity. For comprehensive analysis including Fair Value estimates and detailed financial health scores, investors can access the full Pro Research Report, available for Etsy and 1,400+ other US stocks.
In other recent news, Etsy reported its fourth-quarter 2024 financial results, which fell short of market expectations in terms of Gross Merchandise Sales (GMS) and revenue. Despite this, the company saw an increase in its take rate, attributed to higher penetration of advertisements and payment options. Analysts from Truist Securities, Canaccord Genuity, and Raymond (NSE:RYMD) James have adjusted their price targets for Etsy, reflecting mixed sentiments about the company’s performance and future prospects. Truist Securities reduced its price target to $62 but maintained a Buy rating, citing a strategic pivot and reduced consumer demand. Canaccord Genuity also lowered its target to $76, maintaining a Buy rating, while noting the company’s strategic initiatives to drive growth in 2025. Raymond James kept its Outperform rating with a $65 target, acknowledging the challenges Etsy faces, including reduced discretionary spending and a competitive holiday season. Citi raised its price target to $56 with a Neutral stance, pointing to strategic investments in the platform and recent management changes as potential drivers for future growth. As Etsy navigates these developments, the market remains watchful of its ability to reverse current trends and capitalize on strategic initiatives.
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