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Actionable news in ETSY: Etsy Inc,

Etsy: There Are Problems Here

Summary

Etsy shares are up since reporting a strong Q1 which beat estimates.

We are increasingly concerned about competition from Amazon Handmade, as marketplace size gives Amazon significant leverage in attracting sellers.

Seller Services growth will likely slow more quickly than what most investors anticipate, given decelerating GMS growth.

The 20-25% revenue CAGR into 2018 seems aggressive to us, and we see downside to the Street's revenue estimates.

At 19x EBITDA, the stock has lots of room for multiple compression on any earnings misses.

Etsy (NASDAQ:ETSY) announced Q1 results after the market closed on Tuesday, May 3. The company beat estimates, driven by strong growth in Seller Services. Shares are up strongly since the ER release, but we think investors should hold off on buying into this rally. We see several issues with this company that aren't baked into the rich valuation.

Despite the platform's strong growth thus far, we are unsure of what competitive moat the company has against Amazon (NASDAQ:AMZN). In its Q1 press release, AMZN highlighted its Handmade at Amazon business, saying it had increased selection to nearly 400,000 products from 12,000 artisans in more than 80 countries. This feature was introduced in Q3 of 2015, but AMZN didn't highlight the business in the Q4 press release. We believe highlighting it in the Q1 press release is an early sign of the company beginning to aggressively push its Handmade business.

ETSY is an online marketplace tailored almost exclusively to a female audience. Its creativity in giving the marketplace a homey and artsy feel are certainly appealing and have granted...


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