Etsy (NASDAQ:ETSY) made a name for itself as a means to connect independent sellers to potential buyers. The current macroeconomic environment is likely to hamper sellers of anything for the next while, and it showed in Etsy’s sell-off today. Etsy saw a strange lateral move from the analyst market today. Evercore (NYSE:EVR) placed Etsy on its “Tactical Underperform” list. Despite this move, however, Evercore maintained its current rating of “outperform” on the company as a whole.
Pick the best stocks and maximize your portfolio:
- Discover top-rated stocks from highly ranked analysts with Analyst Top Stocks!
- Easily identify outperforming stocks and invest smarter with Top Smart Score Stocks
While Evercore analysts approve of Etsy’s long-term outlook, it still foresees trouble in the short term as customers slow up their buying. Worse, when customers do buy, they look to focus on lower-cost items.
Etsy is indeed between a rock and a hard place right now. It’s likely a good idea to stay out of the way for now, but be prepared to come back in when things start looking better. Thus, I’m neutral on Etsy stock right now. There will probably be a time to come back and buy, but that time isn’t likely to be for a couple months while the market works out some of its larger issues.
Is Etsy Stock a Good Buy, According to Analysts?
Turning to Wall Street, Etsy has a Moderate Buy consensus rating. That’s based on seven Buys and seven Holds assigned in the past three months. The average Etsy price target of $116.44 implies 3.9% downside potential. Analyst price targets range from a low of $76 per share to a high of $168 per share.
However, Etsy has a Smart Score of 1 out of 10 on TipRanks. That’s the lowest level the scale can produce. This suggests that Etsy is almost certain to lag behind the broader market.
Also, insider trading at Etsy has turned markedly negative. Insiders sold $14.4 million worth of Etsy shares in the last three months, and the sentiment therein is now also “very negative.”
The news for Etsy isn’t all terrible, however. The company has seen revenue figures climb in the last three successive quarters. In March 2022, the company put up $579.27 million in revenue. In June, that increased to $585.13 million.
September saw that figure hit $594.47 million, and with the holiday season now in full swing, seeing that number rise ahead of a December 2022 figure is a reasonably safe bet. Both free and operating cash flow figures have also climbed in that same interval.
A Downright Grinchy Christmas Ahead?
The problem for Etsy right now is pretty much the same problem faced by retailers throughout the spectrum. Crippling inflation and soaring uncertainty are causing retail consumers to pull in their spending.
We’ve already seen several studies to that effect; a study from late October showed that the average household was increasing its gift spending this year, from $501 last year to $507 this year. However, that comes with a caveat: shoppers also expect to purchase less for that money. They’ll be getting nine presents this year instead of the 16 purchased last year.
However, this is a move that could actually play in Etsy’s favor. One study of the likely trends landscape for holiday shopping this year noted that shoppers this year will focus on heartfelt and unique gifts.
Etsy has already made some moves in this direction. Recently, Etsy launched some marketing collateral showing that some sellers offer holiday gift-wrapping services as part of the purchase.
The message also pointed shoppers to “handmade holiday sweaters, matching Pjs, party-ready dresses and more,” which sums up the targets of choice for many shoppers this year.
Celebrity gift guides won’t hurt matters much, either. Recently, Nicole Richie offered up her suggestions for Etsy-based gifts. The roster included such wonders as a soy-based candle using a geode for a mold and a portrait of your pet in watercolor.
This is the kind of off-beat stuff that may prove appealing to the holiday shopper this year. Thus, Etsy may end up with an unusually high proportion of holiday spending this year. Throw in a dearth of releases in the video game market, and that only improves Etsy’s prospects.
Shoppers may be in the perfect position to turn to Etsy this year, looking for unique and heartfelt gifts as opposed to the next big thing. Still, shoppers are also expecting to spend only slightly more. Adjusted for inflation, that means “a lot less.”
Conclusion: The Biggest Slice of the Smallest Pie
Etsy is in line to land a big share of holiday shopping this year. The problem, of course, is that that share won’t go nearly as far as it used to.
With shoppers likely front-loading a lot of holiday shopping this year thanks to early deals and inflation concerns, Etsy and other retailers may have seen most of the shopping they will already.
That’s why I’m neutral on Etsy. The holiday season is a wild card play already in progress. Trying to guess how it will pan out is likely a fool’s errand.
