What happened
Shares of online crafts bazaar Etsy (NASDAQ: ETSY) got its tables flipped over on Friday morning. As of noon ET, shares of Etsy are down a shocking 9.7%.
I think you can blame Deutsche Bank for that.
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So what
In a note covered by StreetInsider.com last night, German megabank Deutsche Bank announced it is initiating coverage of Etsy stock -- but only with a hold rating, and a $145 price target that implied little upside in the stock. (Etsy closed near $137 a share last night, before the rating came out.)
Deutsche explained that it is "bullish on the long-term secular trends underlying Etsy's business model." That being said, the banker worried that "near-term user and [gross merchandise sales, or GMS] estimates are not properly capturing reopening headwinds / typical Etsy buyer churn dynamics."
That means Deutsche believes other analysts are irrationally exuberant about Etsy's prospects for sales growth.
Now what
Deutsche then goes on to warn that since "Etsy has nearly doubled its user base since the start of COVID," it's likely that a lot of those new users will spend less on Etsy once the novelty has worn off -- and in particular, in 2022 and 2023.
This creates a risk to Etsy's top line over the next several quarters. And given that Deutsche sees Etsy stock as already "trading at a premium to e-commerce peers" when valued by enterprise value over gross profit, the risk that Etsy's sales won't measure up to expectations -- and that profits would therefore also fall short -- means there's now more risk than reward in Etsy stock going forward.
Judging from today's sell-off, it seems a lot of investors agree.
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