Etsy’s Potential in a Changing Macro Environment

by Warren Seah

Etsy, the online marketplace, continues to demonstrate its potential for success regardless of the state of the macro environment, according to analysts at Wolfe Research. The research team has upgraded Etsy (ticker: ETSY) to Outperform from Peer Perform, setting a price target of $100.

Despite recent underperformance, with a 44% drop in the stock this year compared to a 33% gain in the Nasdaq Composite, Wolfe Research believes that there are multiple avenues for Etsy to thrive over the next 12 to 18 months. In their research note, they highlighted two key factors.

Firstly, if discretionary spending rebounds as the macro environment improves in 2024, Etsy’s earnings could receive a significant boost. Conversely, if the macro situation remains weak or deteriorates further, Etsy has the potential to prioritize cost-saving measures and enhance its margins.

Wolfe analysts pointed out that Etsy’s headcount is currently higher than it was pre-pandemic, indicating an opportunity for streamlining operations. By reducing this number, the company could potentially save $80 million to $100 million in annualized earnings before interest, tax, depreciation, and amortization.

Additionally, while Etsy has made strategic acquisitions over the past five years, these investments have not yet yielded substantial returns. However, the analysts believe that focusing on the core business and temporarily reducing spending on noncore brands could improve the overall margin profile of the company.

Notably, in the second quarter, Etsy reported better-than-expected earnings and sales—an encouraging sign of its resilience in these uncertain times.

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