StockBeat: Etsy Falls as Morgan Stanley Downgrades Outlook

Investing.com – Etsy fell on Thursday after Morgan Stanley downgraded its outlook on the company on worries that recently introduced sales-tax legislation in some U.S. states and a decision to cut advertising investment may hurt growth.

Morgan Stanley's Lauren Cassel downgraded its rating on Etsy to underweight from equal-weight and cut her price on target on the stock to $38 from $52. Etsy (NASDAQ:ETSY) fell about 3%.

Changes in sales-tax compliance laws – introduced at the start of October requiring marketplace facilitators like Etsy to collect and remit sales tax in more than a dozen states – have created a greater risk of cart abandonment and lower conversion, Cassel said.

The crafts marketplace may also see fourth-quarter growth come under pressure following its decision to cut investment in product-listing ads – a proven source of traffic to many Etsy shops - and focus on driving sellers to ramp up marketing spend.

The strategy has a longer payback period and may lead to slower growth, Morgan Stanley suggested.

These headwinds, however, are more than likely to offset the company's free-shipping program, which was rolled out in July this year.

“A shorter holiday calendar and algorithm changes are two other 4Q risks.” Morgan Stanley (NYSE:MS) said.

“While we like Etsy's business model and competitive moat it has established, we now anticipate slowing core GMS growth to result in negative top-line and EBITDA revisions, likely leading to additional multiple compression,” it added.

Related Articles

Gates Foundation CEO Sue Desmond-Hellman to step down after five years

No apology for Elon Musk from British diver at 'pedo guy' defamation trial

U.S. vaping-related deaths rise to 48, cases of illness to 2,291