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DON’T BUY ETSY JUST YET

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DON’T BUY ETSY JUST YET

May 12 2015, 07.35am GMT

STOCK.com

Two brokerage firms initiated Etsy Inc. (NASDAQ:ETSY) coverage on Monday equaling a neutral rating, as some analysts say the stock price already includes possible growth drivers.

Goldman Sachs and Morgan Stanley each predicted a 12 month price target of $20 on the Etsy stock, indicating an almost 3% drop from the latest trading prices as well as a 12 percent drop from the closing price on Friday.

In addition on Monday, Etsy was stuck with a downgrade from neutral to underperform at Wedbush on concerns of alleged counterfeiting. Wedbush gave a price target of $14, indicating around a 33% decline in the share-price from the latest trading prices.

Etsy shares dropped 9.6% to $20.53 in the latest trading session after it opened at its lowest levels since Etsy’s IPO (initial public offering) in mid-April. They have dropped almost 31% since the 16th April which marked their first day of trade.

Morgan Stanley, rating Etsy at equal-weight, estimated that the U.S. addressable market of handmade goods to be around $34 billion, and says that it sees some room for the company to grow from the present 4% estimated market share as Etsy increases its advertising investment even more.

A group of analysts at Morgan Stanley predict that the company will be able to hold on to its current 60% gross margin. But they say that the stock price has already included several bullish expectations, including a forecasted 25% gross merchandise sales rise through 2018.

Meanwhile, Goldman Sachs rated Etsy as neutral and believes the company is in an early stage of increasing the scope of its ecommerce platform, more specifically as it offers sellers additional flexible options to grow their business through sponsored listings, payment and fulfilment functions.

Goldman Sachs analysts estimated the total addressable market of the company at $70 billion, but further added that it believes that across Etsy’s 30 categories, it could address as much as $1.4 trillion in global retail spending. Added to this, Goldman Sachs analysts say that the stock is trading 8 times its estimated 2016 enterprise value to sales already, and therefore it has currently priced into the stock these high success factors.

On Monday, Wedbush released a critical note to its customers that alleged the company has around 5% or more than 2 million items on its website that possibly either constitute copyright or trademark infringements or may even be counterfeit.

It further added that some of the effected brands include Chanel, Michael Kors, Louis Vuitton and some NFL and Disney products. MarketWatch did not receive any comments from Etsy regarding these allegations while the company is not likely to be held directly liable for the infringements, say analysts. However, a crackdown on sellers by some major brands potentially could reduce commissions and fees.

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