Etsy Upgraded By Roth Capital After Q4 Beat

Etsy Inc (NASDAQ: ETSY) announced 23.6 percent year-over-year revenue growth and a 17.8-percent increase in gross merchandise sales, or GMS, to $1.02 billion in its fourth-quarter report Tuesday.

The Analyst

Roth Capital Partners analyst Darren Aftahi upgraded his rating on the shares of Etsy from Neutral to Buy and increased the price target from $20.50 to $28.

The Thesis

Promoted listings and site-wide holiday sales drove the strong results and GMS, Aftahi said in a note.

Etsy's seller service revenues accelerated year-over-year, and new seller tools helped the sequential growth in marketplace revenues, the analyst said. Free promoted listings drove international growth, with the international GMS rising 28 percent year-over-year. 

"Continued momentum from recent initiatives carried into above-consensus guidance, which implies 22-percent revenue growth and 21-percent EBITDA margins at the midpoint," Aftahi said. 

Roth Capital attributed Etsy's strong guidance to the positive execution of key initiatives in 2017 that enhanced the seller and buyer experience and led to accelerating GMS growth. More strategic initiatives are on tap in 2018 to reduce buyer and seller friction, optimize search listing and drive new and repeat buyers, Aftahi said. 

The research firm updated its model for Etsy on the basis of projections for continued momentum in international GMS and revenue growth in seller services that's expected to outpace marketplace revenue. 

Roth now expects 2018 revenue growth of 21.6 percent and GMS growth of 15.1 percent. The EBITDA margin estimate is near the midpoint of the guidance at 21.2 percent, Aftahi said. 

The Price Action

Etsy shares were up about 65 percent over the past year through Tuesday. 

The stock was soaring more than 22 percent at $25.66 at the time of publication Wednesday afternoon. 

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Photo courtesy of Etsy.