Raymond James maintains Etsy stock Outperform rating, $65 target

On Wednesday, Raymond (NSE:RYMD) James reaffirmed its Outperform rating and $65.00 price target for Etsy (NASDAQ:ETSY) stock, which currently trades at $57.29. According to InvestingPro analysis, Etsy appears undervalued based on its Fair Value calculation, with analyst targets ranging from $43 to $105. The stock has shown significant momentum, gaining 8.52% in the past week. The e-commerce platform reported its fourth-quarter earnings for 2024, revealing mixed results with gross merchandise sales (GMS) down by 6.8%, which was more than the Raymond James estimate of a 4.1% decrease and the general market expectation of a 3.6% decline. Revenue growth was modest at 1.2%, slightly below the Raymond James forecast of 1.8% and the market consensus of 2.4%.

Despite the GMS downturn, Etsy’s EBITDA margins outperformed expectations, coming in at 29.4%, which was a 140 basis point improvement over the forecasted figures from both Raymond James and the Street. This margin expansion was attributed to a gross margin increase of 390 basis points, significantly higher than the anticipated improvements. InvestingPro data reveals that Etsy maintains impressive gross profit margins of 71.16%, with a solid financial health score that reflects strong operational efficiency. InvestingPro subscribers have access to 10 additional key insights about Etsy’s financial performance and future prospects.

Etsy cited various challenges impacting its performance, including reduced discretionary spending, a competitive holiday season with a shorter shopping window, shifts in product category demand, and aggressive promotional activity from competitors. The company particularly noted that its core Etsy Marketplace experienced a worsening decline in GMS, with an 8.6% drop in the fourth quarter, compared to a 6.0% decrease in the third quarter and smaller declines in the preceding quarters.

The number of Habitual Buyers, a key metric for Etsy, also declined by 9.5%, a sharper fall than the 4.2% drop seen in the previous quarter. Despite the lower GMS, Etsy’s continued improvements in marketplace monetization have been supporting EBITDA margin growth.

Looking ahead, Etsy provided guidance for the first quarter of 2025, which was below analyst expectations. The company maintains a healthy financial position with a current ratio of 2.39, and its cash flows sufficiently cover interest payments. For detailed analysis and comprehensive insights into Etsy’s financial health and growth prospects, investors can access the full Pro Research Report available on InvestingPro, which covers over 1,400 US stocks with expert analysis and actionable intelligence. The company anticipates GMS to decline at a rate similar to the fourth quarter of 2024, around 6.8%, which is more than the Raymond James estimate of a 0.8% decrease and the market consensus of a 1.5% decline. EBITDA margins are projected to be in the range of approximately 25-26%, which is below the midpoint of the consensus and Raymond James expectations.

During the earnings call scheduled for 8:30 a.m. EST, Etsy is expected to discuss strategies to attract new customers, re-engage with lapsed and habitual buyers, stimulate growth in key categories, expand internationally, explore take rate adjustments, and identify further margin enhancement opportunities.

In other recent news, Etsy has seen several developments that are noteworthy for investors. Truist Securities has adjusted its price target for Etsy shares, lowering it from $70 to $67 while maintaining a Buy rating, ahead of the company’s fourth-quarter 2024 earnings report. This revision is due to anticipated challenges in revenue, attributed to a difficult macroeconomic environment affecting order frequency and values. Meanwhile, Citi has raised its price target for Etsy to $56, maintaining a Neutral stance, reflecting cautious optimism about Etsy’s Gross Merchandise Sales (GMS) trends and strategic investments. Bernstein has also revised its outlook, reducing the price target from $60 to $55, while keeping a Market Perform rating, citing ongoing softness in GMS data.

Etsy’s recent strategic moves include the approval of a new stock award plan, the 2024 Inducement Plan, aimed at attracting new talent. This plan reserves 1,000,000 shares of common stock for new employees, aligning with Nasdaq Listing Rules. The company has also experienced changes in key management positions, including a new CFO, CGO, and CMO, which may signal potential strategic shifts. Despite these challenges, Etsy continues to focus on investments such as improving its search function and introducing a loyalty program. These efforts are part of Etsy’s strategy to navigate the competitive e-commerce landscape and enhance user engagement.

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