Deutsche Bank expressed caution regarding e-commerce companies Wayfair (NYSE:W) and Etsy (NASDAQ:ETSY), citing industry stability but weakening data for both companies. The firm highlighted concerns about Etsy's Gross Merchandise Sales (GMS), indicating that all demand indicators suggest a potential steep decline in the third quarter.
This trend could lead to a miss in quarter-over-quarter growth stability and raise the risk of a guide down for the fourth quarter. Etsy's U.S. sales are reportedly tracking towards a 3% year-over-year decrease, down from flat growth in the second quarter. Additionally, daily active user growth and app downloads have seen significant declines, with no signs of improvement.
For Wayfair, the end market's weakness and a slowdown in sales growth since July were noted, although quarter-to-date trends suggest some stability compared to the second quarter. Despite a decrease in August and early September sales, Wayfair maintains its position as a leading share in its category.
Deutsche Bank pointed out that Wayfair's inline third-quarter revenue outcome is still possible, but the numbers are likely pacing towards a slight deceleration quarter-over-quarter. Despite these challenges, the bank sees Wayfair as having an attractive risk/reward profile at the current levels, especially considering the anticipated lower rate environment that could spur housing activity and, consequently, growth in the home furnishings industry.
Both Wayfair and Etsy's recent trends raise concerns as they head into the crucial holiday quarter. Etsy's investments in gifting and long-term value-centric product experiences are recognized but may not immediately translate into increased gross merchandise sales due to tepid mobile user trends. Wayfair's performance, while showing some signs of stability, still suggests a potential revenue miss for the third quarter, despite its strong market share and the possibility of benefiting from a lower rate environment in the future.
Etsy has been the focus of various analyst firms. Truist Securities maintained a Buy rating on Etsy, citing solid Gross Merchandise Sales (GMS) tracking and new strategic initiatives. Despite a 2.1% year-over-year decrease in GMS to $2.9 billion in the second quarter of 2024, Etsy reported a revenue growth of 3% to $648 million. Notably, the firm anticipates Etsy to benefit from potential regulatory changes proposed by the Biden administration.
In contrast, Cantor Fitzgerald and Piper Sandler initiated coverage on Etsy with a Neutral rating, highlighting potential structural challenges and concerns over discretionary spending. BTIG also maintained a Buy rating on Etsy, noting a stabilization in order frequency amidst mixed signals.
Etsy announced the retirement of CFO Rachel Glaser, with the search for a successor ongoing. As part of its recent developments, Etsy has launched several initiatives aimed at enhancing user engagement and sales, including a new search algorithm and a loyalty program. These developments reflect Etsy's ongoing efforts to adapt to current market conditions.
InvestingPro Insights
To complement the analysis of Etsy's current market challenges, InvestingPro data offers additional context. Despite the concerns raised by Deutsche Bank about Etsy's Gross Merchandise Sales, the company maintains impressive gross profit margins of 70.78% for the last twelve months as of Q2 2024. This strength is reflected in one of the InvestingPro Tips, which highlights Etsy's "Impressive gross profit margins."
However, the market's caution is evident in Etsy's valuation metrics. The company's P/E ratio stands at 23.01, which is relatively low compared to its PEG ratio of 0.16, suggesting that the stock might be undervalued relative to its growth potential. This aligns with another InvestingPro Tip stating that Etsy is "Trading at a low P/E ratio relative to near-term earnings growth."
It's worth noting that while Etsy faces challenges, it remains profitable, with a revenue of $2,772.38 million over the last twelve months as of Q2 2024. This profitability is corroborated by an InvestingPro Tip indicating that analysts predict the company will be profitable this year.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Etsy, providing a broader perspective on the company's financial health and market position.
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