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Can Etsy stock craft rebound with support from big investor?

Key points

  • Etsy broke ground in early February when activist investor Elliott Investment Management revealed a 13% stake. Elliott’s Marc Steinberg joined the board.
  • Etsy announced job cuts in a bid to improve efficiency and address stagnating growth.
  • Analysts are forecasting an upward trend in Etsy stock, with a consensus price target of $91.96, an increase of 25.27%.
  • 5 Stocks We Like More Than Etsy

Etsy Inc. NASDAQ:ETSY rose in early February on news that Marc Steinberg, a partner at Elliott Investment Management, had taken a seat on the online retailer’s board of directors.

Steinberg also serves on the board of directors of Pinterest Inc. New York Stock Exchange: PINSof which Elliott is also a shareholder.

Elliott has reportedly built up a 13% stake in Etsy, whose shares fell 48.22% last year.

Elliott is now Etsy’s largest shareholder.

In a statement, Steinberg said, “I look forward to working with the Board and supporting Josh and the team as they execute initiatives to improve the customer experience, accelerate top-line and bottom-line growth, and drive long-term value.”

Etsy shares vanished in 2022

Etsy’s growth has stalled, sending the stock lower relative to high-flying AI-related technology stocks.

If you look at Etsy’s chart, you’ll see that the stock saw a sharp rise between March 2020 and November 2021 as its business model of selling artisanal and other unique products was a perfect fit during the pandemic.

Profits rose sharply in 2020 and 2021, but things started to cool down in 2022 as revenue slowed and year-over-year profits declined.

Not only had the pandemic online shopping craze subsided, but inflation and higher interest rates hurt Etsy sales. Additionally, Etsy’s best-selling product categories include crafts and supplies, jewelry, and downloadable files. Consumers could postpone purchases, find cheaper alternatives, or make their own products to meet their needs.

The commitment by Elliott, one of the largest activist managers, shows that deep-pocketed investors see potential in Etsy’s stock to turn around weak performance.

Etsy’s strengths include:

  • Unique Product Offering: The Etsy platform offers a variety of handmade, vintage, and craft materials. The appeal is aimed at consumers looking for unique items.
  • Support for independent sellers: The Etsy platform allows individual artisans and small businesses to reach a broader audience, giving them a platform to showcase their creations.
  • Community: Etsy strives to develop a sense of community between buyers and sellers by encouraging interaction and feedback. This generates greater participation on the platform.
  • Customization and Personalization: The platform allows shoppers to easily discover products tailored to their specific preferences.

Etsy has reportedly been in talks with Elliott for several months. And the 13% turnout didn’t happen overnight; It takes months for an institutional investor to build up a significant position in a stock.

Cost reduction and layoffs

Etsy began focusing on its performance in 2023 with the announcement that it was cutting jobs in a bid to increase efficiency. In December, the company said it would lay off 225 employees.

“While the Etsy marketplace is still more than double the size of 2019, we must recognize and adapt to current realities,” CEO Josh Silverman said in a statement.

“We are operating in a very challenging macro and competitive environment, and gross merchandise sales have remained essentially flat since 2021,” he added. “This means we’re not generating more sales for our sellers, which is the most important thing we can do for them.”

Silverman said employee expenses had increased, which was not a sustainable trajectory.

Following the Shopify path

Etsy is following in the footsteps of fellow e-commerce specialist Shopify Inc. New York Stock Exchange: STOREwhich cut costs, largely through layoffs, in early 2023. There has been considerable divergence in the performance of the two companies, with Shopify advancing 58.15% last year.

Wall Street seems optimistic that Etsy could see a rebound in its growth. Etsy analyst forecasts show a consensus price target of $91.96, an increase of 25.27%. That would return the price to August 2023 levels.

Following the gap following the Elliott stake announcement, the stock ended the week ending February 2 with a gain of 8.87%.

Shares have been gradually selling off during the week of February 5, but the view here is longer term; You’re not likely to see this stock take off like a rocket in the coming weeks. Instead, it will take months to see an improvement in revenue growth that translates into share price appreciation.

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