Can Etsy stock recover with the support of a large investor?

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

Steinberg is also on the board of directors of Pinterest Inc. NYSE: PINSof which Elliott is also a shareholder.

According to reports, Elliott has amassed a 13% stake in Etsy, whose shares have fallen 48.22% over the past 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 advance initiatives to improve the customer experience, accelerate top-line and bottom-line growth, and drive value at long term. “

Etsy stock is sold out in 2022

Etsy’s growth has stalled, which has sent the stock lower relative to high-flying AI-related tech stocks.

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

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

Not only has the pandemic-driven online shopping craze subsided, but inflation and higher interest rates have weakened Etsy’s sales. Additionally, top-selling product categories on Etsy include crafts & supplies, jewelry, and downloadable files. Consumers may postpone purchases, find cheaper alternatives, or produce their own goods to meet their needs.

The commitment from Elliott, a major activist manager, shows that deep-pocketed investors see potential for Etsy shares to reverse weak performance.

Etsy’s strengths include:

• Unique product offering: The Etsy platform offers a range of handmade, vintage and artisanal items. 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 wider audience by giving them a platform to showcase their creations.
• Community: Etsy is committed to developing a sense of community between buyers and sellers by encouraging interaction and feedback. This leads to greater engagement 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% share didn’t happen overnight; It takes months for an institutional investor to build up a significant position in a stock.

Cost cutting and layoffs

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

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

“We are operating in a very challenging macroeconomic and competitive environment and gross merchandise sales have remained essentially stable since 2021,” he added. “This means we will no longer drive sales to our sellers, which is the most important thing we can do for them.”

Silverman said employee expenses have grown, which is not a sustainable trajectory.

Following the Shopify path

Etsy is following in the footsteps of fellow e-commerce retail specialist Shopify Inc. NYSE: BUYwhich cut costs, largely through layoffs, in early 2023. There’s been a notable divergence in the performance of the two companies, with Shopify advancing 58.15% over the past year.

Wall Street seems optimistic that Etsy could see a resurgence in growth. Etsy analyst forecasts show a consensus price target of $91.96, an upside of 25.27%. This would bring the price back to August 2023 levels.

After the gap-up following the announcement of the stake in Elliott, the stock closed the week ending February 2 with a gain of 8.87%.

Stocks gradually sold off in the week of February 5, but the view here is long-term; you’re not likely to see this stock take off like a rocket in the next few weeks. Instead, it will take months to see an improvement in revenue growth that translates into share price appreciation.

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