Etsy (ETSY) PT Lowered to $47 at Wells Fargo

Wells Fargo analyst Ken Gawrelski lowered the price target on Etsy (NASDAQ: ETSY) to $47.00 (from $58.00) while maintaining a Underweight rating.

The analyst comments "Trim 3Q GMS ~1.5% to -3.0% y/y, low end of neg. 'low-single digit' y/y guide, and expect 4Q GMS guide -1% to -3%, CC, vs. Street -1.3% y/y. Cut 3Q GMS to below consensus on mixed consumer trends, continued low-cost eComm competitive pressure and weaker traffic (see Exh. 3 & 4). Also note that CC GMS trend worsens into 3Q to -3.5% from -1.9%. Expect LSD % decline GMS guide for 4Q, CC. We est -1.1% 4Q GMS, -3.2% y/y CC. Slightly better vs. 3Q on Oct. comp and +34% q/q, inline w/ seasonality. Expect margins in line to slightly below 3Q and FY EBITDA margin guidance of similar to ~27.0% and 27.4%, respectively. Forecast 26.6% 3Q EBITDA margin (-200 bps y/y), and a 28.0% margin for 4Q (flat y/y), for a FY EBITDA margin of 27.1%, -30 bps y/y. We see ETSY hiring for key R&D initiatives and leaning into paid social (marketing +50 bps y/y in H2:24 as a % of GMS). Estimating LSD% GMV declines, plus LSD% OpEx growth, yields -240 bps of margin deleverage through '27 vs. -130 bps prior. 3Q GMS growth impacted by tough Sept comp as well as Etsy.com search ranking changes. We estimate Etsy.com GMS -2.9% y/y in July / Aug, -5.3% y/y in Sept. 3Q:23 benefited from Sept promo, material to 3Q:23 GMS growth. We est Sept ’23 GMS +2.0% y/y, and Sept ’24 GMS -5.5% y/y. July / Aug '24 Etsy.com GMS of -2.9% y/y vs. '23 comp of +0.5% GMS y/y (Exh. 2). Also, 8/28 updates to Etsy.com product search rankings, optimizing for discovery, have potential LT benefits, but could be shorter-term pain. Several initiatives to reinvigorate GMS growth, but unclear impact on medium-term growth algo. Renewed focus on mobile app (42% of GMS) beneficial w/ higher conversion on app. Loyalty initiative, Etsy Insider, beta testing in Sept. could boost frequency. Initial modifications to Etsy search & discovery appear to be impacting traffic (Exh. 5), conversion impact uncertain. Recent de minimis news could benefit Etsy; believe regained marketing efficiency would offset any modest supply constraints."

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