Etsy Inc. stock rose 2% Tuesday, after Piper Sandler upgraded the stock to the equivalent of buy from neutral and said its annual survey of teens has found the company has momentum with Gen Z.
The online arts and crafts marketplace appeared on Piper’s Taking Stock with Teens Survey for the first time since fall of 2021, wrote analysts led by Edward Yruma. Depop, the fashion resale site that Etsy acquired for $1.6 billion in July of 2021, appeared in the survey for the first time since spring of 2021. The survey found a shift in teen preferences toward off-price and second-hand shopping.
Etsy’s
ETSY,
core marketplace strengths of sustainability, intention and personalization are a good fit with the core values of the Gen Z consumer as well as millennials, Yruma wrote. The site has more than 150 million shopkeeping units, or SKUs, with a strong focus on personalization that offers a key differentiator to other retailers and e-commerce sites.
“We also believe that ETSY has made significant strides in reactivating
its 100 million lapsed buyers (24 million reactivated in 2022, highest ever), which should help drive stronger active buyer results over the coming quarter,” Yruma wrote.
Etsy was a core beneficiary of the pandemic, when people trapped at home started shopping online in increasing numbers. The company has managed to retain those gains — teens surveyed by Piper named Etsy a favorite site.
See now: Etsy says it’s three times as big as it was before the pandemic, helped by holiday-season sales
“While macro remains choppy, Etsy’s 28% last twelve-month EBITDA margin and long-term growth opportunities make this one of the highest quality names in our coverage,” said the analyst.
Piper raised its stock price target to $40 from $135 previously, or about 26% above its current price.
Etsy has one of the strongest financial models in Piper’s coverage, with 28% EBITDA margins in fiscal 2022. Over time, stronger results at Depop. as well as Elo7 and Reverb, two other e-commerce sites Etsy has acquired, are expected to minimize the current estimated EBITDA margin drag of about 400 basis points, said Yruma.
The company has managed to increase its take rate by a higher uptake in value-added services such as ads, labels and shipping. It’s also succeeded in implementing select selling fee increases, which rose to a base take of 6.5% in April of 2022 from 5% previously.
“We also see significant opportunity with GMS (gross merchandise sales) per active buyer (currently $132) and with habitual buyers (7.4 million
customers drive 40% of sales),” said the note.
That is expected to drive a net medium-term algorithm of 10% to 15% revenue growth and 15%+ EBITDA growth.
The stock has fallen 19% in the last 12 months, while the S&P 500
SPX,
has fallen 10%.
This post was originally published on Market Watch
