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Etsy stock price could crash by 25% as its growth decelerates

By: Invezz
Image for Etsy Q1 results

Etsy (NASDAQ: ETSY) stock price nosedived in the pre-market session after the e-commerce company published weak financial results. It plunged by more than 9% and reached a low of $70, which was lower than the December high of $90.

Etsy growth is waning

Etsy has been a company in trouble in the past two years as its stock crashed by over 77% from its all-time high. This plunge happened as the spectacular growth it had during the COVID-19 pandemic waned. 

Further, the company has little room to grow its earnings through price moves because of the anger it has caused among its merchants. 

This slow growth was evidenced by the company’s weak financial results. Its Gross Merchandise Volume (GMV) was flat in Q4 at $4 billion while its revenue rose by just 4.3% to $842 million. 

The slow growth rate was weaker than its historical average. Data by SeekingAlpha shows that its five-year growth rate was 44% as demand has continued waning.

Further, the number of active sellers and buyers is not growing as fast. The number of active buyers in 2023 stood at 92 million, down from 95 million in the previous year. In the same case, the number of sellers in the ecosystem is not growing that fast.

The challenge for Etsy is that its growth will likely be challenging this year since inflation remains stubbornly high. It has also had a soft start of the year. In a statement, the CFO said:

“It remains a challenging macro environment, with consumer sentiment in the U.S. and international markets remaining low, making us cautious in our forecasting at the start of the year.”

The challenge with Etsy is that it is still highly valued considering that its business conditions are not doing well. It has a forward PE ratio of 16.25, slightly higher than the sector median of 15.80. Its forward EV to EBITDA stands at 13.7.

The only good thing about Etsy is that consumer confidence in the US is rising and the Fed is expected to start cutting interest rates later this year. These two events could lead to more consumer spending later this year.

Etsy stock price forecastEtsy stock

Turning to the daily chart, we see that the Etsy share price attempt to rebound found a strong barrier at $89.45 in December. Most recently, the stock formed a rising wedge, which explains why it has crashed hard after its earnings report on Thursday. 

The shares remains below all moving averages, which is a sign that bears are in control. Therefore, the short-term outlook for the stock is bearish, with the next level to watch being at $65.67, its lowest swing this month. 

A break below that level will see it crash to the next point at $58.10, its lowest point in November. This price is about 25% below the current level.

The post Etsy stock price could crash by 25% as its growth decelerates appeared first on Invezz

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