Advanced AI And Mobile App Upgrades Will Improve Engagement

Key Takeaways

• Etsy's focus on AI-driven personalization and app improvements aims to boost buyer engagement and positively impact revenue and earnings.
  
• Strategies like tailored marketing and adapting to tariff challenges could enhance margins and safeguard revenue from global economic issues.
  
• Etsy faces revenue growth challenges from discretionary spending reliance, international market issues, competitive pressure, and potential cost increases from investments and tariffs.

Catalysts

Operates two-sided online marketplaces that connect buyers and sellers worldwide.

• Etsy is focusing on enhancing the customer experience through advanced AI and machine learning to drive deeper personalization. This strategy is expected to increase buyer engagement and frequency over time, impacting revenue positively.
  
• The company is improving its mobile app with a more browsable design to enhance user engagement and conversion rates. As the app's share of total Gross Merchandise Sales (GMS) grows, this is likely to bolster revenue and earnings.
  
• Initiatives to personalize marketing content and increase the effectiveness of paid social channels aim to boost buyer reactivation and conversion, potentially improving net margins by optimizing advertising spend.
  
• Etsy is leveraging its diverse and resilient marketplace model to address global tariff challenges, with efforts like promoting domestic-only purchasing. This strategy could protect revenue from potential macroeconomic impacts.
  
• The divestiture of Reverb allows Etsy to focus on growth opportunities uniquely suited to its marketplace model, potentially bolstering earnings and improving overall financial efficiency.

Etsy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Etsy's revenue will grow by 2.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.8% today to 12.8% in 3 years time.
• Analysts expect earnings to reach $384.9 million (and earnings per share of $3.31) by about April 2028, up from $303.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $619.8 million in earnings, and the most bearish expecting $241 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.6x on those 2028 earnings, down from 16.3x today. This future PE is greater than the current PE for the US Multiline Retail industry at 15.4x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.79%, as per the Simply Wall St company report.

Etsy Future Earnings Per Share Growth

Risks

• Etsy's reliance on discretionary consumer spending and potential macroeconomic headwinds could negatively impact buyer frequency and revenue growth.
  
• Challenges in international markets, alongside currency exchange rate fluctuations, could further pressure revenue and earnings, especially given significant non-U.S. transactions.
  
• Increased tariffs and changes to de minimis exemptions pose potential risks to cross-border trade, which might influence the pricing competitiveness of Etsy's offerings, affecting revenue.
  
• Competitive pressures, particularly from larger e-commerce rivals with significant local supply chains, could impact Etsy's market share and revenue growth prospects.
  
• Investments in product development, machine learning, and marketing initiatives might lead to increased operational costs and pressure on net margins if not offset by corresponding revenue gains.

Valuation

• The analysts have a consensus price target of $54.222 for Etsy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $92.45, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.0 billion, earnings will come to $384.9 million, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $46.13, the analyst price target of $54.22 is 14.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.