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On Thursday, Raymond (NSE:RYMD) James made an adjustment to its price target for Etsy (NASDAQ:ETSY), bringing it down from $65.00 to $60.00. Despite the reduction, the firm maintained an Outperform rating on the shares. The revision follows Etsy’s reported shortfall in fourth-quarter Gross Merchandise Sales (GMS) and revenue, along with first-quarter guidance that fell short of expectations. According to InvestingPro data, analyst targets for Etsy currently range from $40 to $100, with the stock appearing undervalued based on Fair Value analysis.
Etsy’s shares have been under pressure due to the recent financial results, but Raymond James sees a favorable risk/reward profile for the stock. The firm highlights Etsy’s attractive valuation, which is currently around 13.8 times EV/EBITDA. With a market capitalization of $5.8 billion and an impressive gross profit margin of 72.4%, InvestingPro analysis reveals strong fundamentals with a "GOOD" overall financial health score. Analysts at Raymond James anticipate sequentially better trends as the year progresses, which could lead to an improvement in market sentiment and potentially provide an upside to estimates, although they note it is too early to make such a call.
In 2024, Etsy’s focus on improving its search functionality impacted short-term conversion rates, which the company stated resulted in a reduction of at least a few hundred million dollars to GMS. For 2025, Etsy is shifting its product development focus back towards conversion. Raymond James points out that if Etsy can recapture approximately $300 million of GMS, it could benefit GMS by around 240 basis points in 2025, with a stronger impact expected in the second half of the year.
The company has expressed that it expects margins to improve in the latter half of 2025 due to seasonality. However, Etsy has not set a definitive floor for margins as it seeks to retain flexibility in its investment spending. With a robust free cash flow yield of 13% and strong cash flows to cover interest payments, the company maintains financial flexibility for strategic investments. Raymond James believes that increased spending to drive GMS improvement would be beneficial for Etsy’s stock, even if it limits the potential growth in EBITDA percentage. The firm suggests that the stock may remain rangebound until there are clear signs of GMS improvement, with the second half of the year being a potential catalyst for trend changes. For deeper insights into Etsy’s financial health and growth potential, access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Etsy’s fourth-quarter financial results for 2024 revealed a decline in Gross Merchandise Sales (GMS) by nearly 7% year-over-year, with a specific drop of almost 9% in the Etsy Marketplace. Despite these challenges, Etsy’s adjusted EBITDA margins exceeded expectations, supported by strong gross margin expansion. Analysts have responded with mixed outlooks: Goldman Sachs maintained a Sell rating with a $45 price target, citing ongoing competition and consumer priorities. Stifel revised their price target to $51 from $56, maintaining a Hold rating, while Evercore ISI adjusted their target to $60, keeping an Outperform rating, highlighting potential for future growth if trends improve. BTIG also reduced their target to $60 but continued to recommend a Buy, noting Etsy’s strong free cash flow and competitive position. Truist Securities lowered their target to $62 from $67, maintaining a Buy rating, and emphasized the company’s strategic shift towards enhancing its platform. Despite the varied analyst perspectives, Etsy’s management remains focused on improving GMS trends and profitability in the coming quarters.
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