Online marketplace platform provider Etsy (NASDAQ: ETSY) has already started to face the headwinds of concerned consumers. Evercore ISI analyst Shweta Khajuria observed that consumer confidence has reduced in the top five markets that Etsy operates in, especially western Europe, where confidence has fallen to its lowest level in more than seven years.
In the second quarter of this year, the company witnessed a 4% decline in domestic monthly active users (MAU) and a 1% decline in global MAUs on a year-over-year basis. Moreover, Khajuria also predicts near-term risk for Etsy because the company’s revenues are meaningfully dependent on consumer discretionary spending.
More elaborately, Etsy’s top six categories, namely Homeware & Home Furnishings, Jewelry & Personal Accessories, Apparel, Craft Supplies, Paper & Party Supplies, and Beauty & Personal Care; generated 77% of its revenues in 2021. These categories are expected to face a slowdown in sales in the second half of the year.
Also, Khajuria noted that a proprietary U.S. Online Shopper survey conducted by Evercore showed declining consumer confidence, which makes the analyst concerned about the company’s near-term prospects.
“22% of our respondents said they plan to spend more on Etsy over the next 6-12 months (vs. 27% last year). Also, 65% of respondents said they are ‘extremely or very’ satisfied with Etsy—lowest we have seen in four years. Finally, 58% of respondents expect their retail spend over the next 6-12 months to be lower in the wake of rising inflation,” explained Khajuria.
These points prompted the analyst to cut ETSY’s price target for the next 12 months to $95 from $130.
Etsy’s Long-Term Catalysts
Nonetheless, several positives were also pointed out in the research note, which led the analyst to maintain a Buy rating on the company.
Khajuria pointed out that the website traffic trends of Etsy and its peer Amazon (AMZN) came out as the most resilient in the e-commerce space. Despite a decline in MAU in Q2, the trends were much better than those of peers Walmart (WMT), Target (TGT), and eBay (EBAY).
10% of Etsy customers that participated in the survey spend more than $800 annually on the platform, and 25% purchase from Etsy two to three times a month. Both of those figures were higher than last year’s, making the analyst optimistic about the platform’s loyal customer base.
Also, Etsy serves a total addressable market (TAM) of $1.7 trillion, out of which online sales make up $250 billion – $300 billion. This means that Etsy has ample room to expand, and the company is well-positioned for growth due to its devoted customers.
Wall Street’s Take
Wall Street is cautiously optimistic about Etsy, with a Moderate Buy rating based on 12 Buys and six Holds. The average price target for Etsy is currently $119.88, implying 50.2% upside potential.
Final Thoughts – There’s Hope
As weakening macro trends lead to softening retail demand, Etsy has a rough patch of road ahead. However, the road can become smoother eventually, as Etsy has a loyal customer base and a large target market. Most analysts covering the stock remain optimistic despite macroeconomic headwinds.
