KeyBanc: Etsy's Q4 Validates New Management, Improved Platform For Buyers, Sellers

Etsy Inc (NASDAQ: ETSY) parted ways with longtime CEO Chad Dickerson in May 2017 at a time when its business was struggling to remain relevant. But on Tuesday, the company's fourth-quarter earnings report validated the business, which has become a "better place to shop" and a "better place to sell," according to KeyBanc.

The Analyst

KeyBanc Capital Markets' Edward Yruma maintains an Overweight rating on Etsy's stock with a price target boosted from $26 to $28.

The Thesis

Etsy's Q4 earnings report was "strong" and highlighted by an acceleration in GMS growth — gross sales on etsy.com — from 13 percent in the third quarter to 18 percent, Yruma said in the research report. (See the analyst's track record here.)

The company's new management team, led by CEO Josh Silverman, is employing artificial intelligence capabilities to connect shoppers with products on the platform and scarcity tags, which helped conversion rates in the quarter, the analyst said. 

Etsy's Seller Services, led by Promoted Listings, is becoming increasingly popular on the platform, and algorithm improvements are resulting in traffic being directed to the correct items, Yruma said. 

Etsy's take-rate is "far below" its peers, and a 50-basis point increase to the transaction fee could add an incremental $18 million in EBIT, according to KeyBanc. 

Price Action

Shares of Etsy were trading higher by more than 20 percent at $25.34 after the open Wednesday, which is above the stock's 52-week high of $22.34.

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Photo courtesy of Etsy.