Shaving Our FVE on Macroeconomic Pressure Despite Resilient Sales for Wide-Moat Etsy; Shares Still Cheap

Wide-moat Etsy posted resilient third-quarter results, with $594 million in sales and $3.0 billion in gross merchandise sales edging our $567 and $2.9 billion forecasts. Results were particularly impressive when juxtaposed against a worsening macroeconomic backdrop and acute pressure on e-commerce competitors, with the online channel categorically skewing toward more discretionary products like home decor, apparel, and crafts, where consumers typically first trim spending. More concretely, the core Etsy marketplace is 2.3 times larger than the comparable period in 2019, representing only a modest slowdown relative to second-quarter levels (2.4 times), which suggests to us that pressures from reopening trends and stimulus have largely abated. By our estimates, this figure handily outstrips broader U.S. e-commerce (mid-80's) and publicly traded e-commerce competitors (eBay at 2.5% and Amazon around 40%), indicating that the artisanal marketplace remains on much firmer competitive footing than the market gives it credit for. Nevertheless, we expect to lower our $180 fair value estimate by a high-single-digit percentage in light of our expectations for slower growth in 2023 and 2024, corroborated by fourth-quarter guidance below our ex ante forecasts—with rising costs of borrowing and persistent inflation likely to curtail consumption spending over the next four to six quarters, in our view.