Etsy shares were downgraded twice to "sell" as buyers lost and profits were under pressure

It is learned that on March 9, John Colantuoni, an analyst at investment institution Jefferies, made a rare consecutive downgrade of Etsy, a former Wall Street darling, from buy to underperform, and lowered Etsy's target price from US$151 to US$85.

Analyst John Colantuoni and his team warned that higher buyer churn is forcing Etsy to increase marketing spending, which is putting pressure on profit growth. Analysts believe that deteriorating buyer trends and slowing profit growth will pose downside risks to Etsy.

“Etsy’s 70% valuation premium to the internet looks unsustainable given below-average EBITDA growth (11% vs. 15%) and downside risk to consensus,” Colantuoni said.

The analyst noted that Etsy's buyer churn increased throughout 2022, reaching an all-time high in the fourth quarter. Buyer spending also declined during the period, falling 3% year-over-year in the fourth quarter.

Last month, Etsy reported fourth-quarter marketing expenses of $245 million, up about 20% from a year earlier. It added 9.5 million buyers in the quarter, up 51% from the previous quarter.

Etsy has seen strong growth in the years since its 2015 IPO, but it has been hit by rising inflation along with its peers last year. Etsy shares plunge more than 45% in 2022 and then fall 5% in 2023. The new $85 price target implies that Etsy shares could fall about 25% from Wednesday's closing price.

In February, Etsy released its latest quarterly figures, showing revenue of $807.24 million (up 12.6% year-over-year), with a $55.12 million topline. Consolidated GMS was $4.0 billion, down 4.0% year-over-year and down 0.7% on a currency-neutral basis; Etsy Marketplace reported GMS of $3.7 billion, down 3.5% year-over-year and up 145% on a three-year basis.

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