There's trouble ahead for Etsy as shoppers pull back on spending, according to Jefferies. Analyst John Colantuoni double downgraded the stock to underperform from buy, saying the company is having to spend more on marketing as the buyer churn rate goes up. That's putting pressure on Etsy's EBITDA, the analyst said. "With more limited take rate upside and deteriorating buyer trends, we see downside to consensus from slowing top line and moderating margin expansion," Colantuoni said to clients on Thursday. "We are double-downgrading to Underperform (from Buy) as ETSY's 70% valuation premium to Internet appears unsustainable given below average EBITDA growth (11% vs. 15%) and risk of downside to consensus," Colantuoni said. The analyst noted that Etsy's buyer churn rose throughout 2022, reaching a record in the fourth quarter. Buyer spending also lowered during this time, down 3% year over year in the fourth quarter, according to the note. Meanwhile, marketing in the fourth quarter jumped about 70% to get new buyers. "We worry a reliance on new buyers could keep churn (and marketing) elevated and pressure spending by reducing the mix of existing buyers with higher stickiness and frequency. Slowing GMS growth and modest margin upside results in downside to consensus," Colantuoni wrote. Etsy had several strong years of growth following its initial public offering in 2015. Over the last year, however, the online retailer took a hit from rising interest rates along with other internet stocks. Etsy shares are down 5% in 2023, after tumbling more than 45% in 2022. Colantuoni there's more downside ahead. The analyst's new $85 price target, slashed from $150, implies Etsy shares can fall about another 25% from Wednesday's close. The stock dropped 6% in Thursday premarket trading. ETSY 1D mountain Etsy shares 1-day —CNBC's Michael Bloom contributed to this report.
