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Morgan Stanley Increasingly Confident In Etsy, Boosts Price Target

Shares of Etsy Inc ETSY 0.07% rose on better-than-expected Q2 results. There is “increasing confidence” in the company’s near-term and out-year results, driven by higher GMS and GMS per buyer growth, Morgan Stanley’s Brian Nowak said in a report. He maintained an Equal-weight rating on Etsy, while raising the price target from $11.50 to $13.50.

Etsy’s shares gained ~7 percent after the company reported a Q2 beat in early August. Etsy also raised its revenue growth and EBITDA margin guidance for 2016 from 20-25 percent to 25-28 percent and from 10-11 percent to 13-14 percent, respectively.

Improved Performance

The upside in Etsy’s Q2 results were driven by the company’s efforts to improve buyer experience, which led to an improve in conversion across mobile and desktop, analyst Nowak mentioned.

“As such, we now have increasing confidence in ETSY's near-term and out-year results, driven by better than expected GMS and GMS per buyer growth (due to the aforementioned conversion improvements). We are also sharpening our modeling around ETSY's sellers service revenue given continued adoption and the roll-out of new services,” Nowak wrote.

Moreover, Etsy’s opex is likely to be lower than was earlier estimated, in view of the company’s recent marketing leverage being better than expected. The analyst raised the revenue growth estimates for 2017-2018 from 20 percent to 23 percent.

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