Etsy Earnings: Tough Quarter As Macroeconomic Pressure Weighs, but Positive Trends Start To Emerge

Wide-moat Etsy reported tough quarterly results, and we expect to trim our $162 fair value estimate by a high-single-digit percentage as we contemplate near-term margin deleverage. Our reaction is directionally consistent with the market, which sent shares swooning 6% in aftermarket trading as the firm released lukewarm guidance (0.7% gross merchandise volume growth at the midpoint and decelerating sales growth on a linked-quarter basis). Nevertheless, we remain ready buyers of the name, and identify 1) continued growth in spending among new buyers on the platform; 2) improvements in the firm's curation efforts; and 3) the rollout of a pricing tool, as important developments for long-term investors and underappreciated growth levers. Shares trade at about a 40% discount to our intrinsic valuation, and continue to look attractive for long-term investors. Driving our valuation change, slowing near-term sales will likely result in slower margin recapture, leading us to trim our 2023 and 2024 operating margin estimates to 12.4% and 14.6%, respectively, from 14.2% and 16.4% prior.