Etsy: We Remain Optimistic About Prospects After Painful but Necessary Cuts

Wide-moat Etsy announced sweeping layoffs in an 8-K filing on Dec. 13. It expects to part ways with about 11% of its global workforce, or 225 employees. The measure comes after two years of stagnant gross merchandise volume growth that saw the craft marketplace grapple with lofty inflation, a return to brick-and-mortar shopping, and a mix shift toward services spending. While headcount reductions are painful, we see the move as measured, following a few quarters of nearly zero headcount growth. We expect the company to emerge leaner as consumer spending begins to recover in the second half of 2024. We don't expect any material change to our $145 fair value estimate. The shares appear deeply undervalued, particularly after falling 5%-6% on the news.