On Thursday, Bernstein maintained its Market Perform rating on shares of Etsy (NASDAQ:ETSY), a global online marketplace. The decision comes in light of the company's recent performance and future growth projections.
The analyst from Bernstein highlighted several factors influencing Etsy's current standing. Gross Merchandise Sales (GMS) saw a notable decline in the third quarter, dropping by 4.4% year-over-year (Y/Y) on a foreign exchange-neutral basis and 6% Y/Y for the core Etsy marketplace. This decline was characterized as a concerning figure for the company.
Etsy's guidance for the fourth quarter also suggests a continued downward trend, with expectations set for a low-single-digit to mid-single-digit Y/Y decline. This outlook has raised questions about the company's growth potential heading into 2025.
Although macroeconomic conditions were acknowledged as a contributing factor, changes to Etsy's search functionality and a reduced emphasis on promotions were also cited as reasons for the current performance.
Despite these challenges, the analyst noted that Etsy is making positive strides in enhancing search considerations, which could eventually translate into improved conversion rates, customer retention, and overall shopping behavior. The company's loyalty program is also expected to have an impact over time, although its effects are not yet apparent.
On a brighter note, Etsy's margins were recognized as a positive aspect, with the company operating at approximately a 28% margin. However, there is speculation on whether Etsy should increase its investment to drive growth more aggressively.
The analyst concluded that the debate surrounding Etsy's stock is likely to continue without significant change. A cautious stance was recommended, with the firm waiting for more substantial evidence of the effectiveness of management's growth initiatives before altering its position on the stock.
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