On Monday, analysts at Wedbush Securities Inc said they believe that fake goods on online marketplace Etsy Inc’s (ETSY – Snapshot Report) website may instigate problems for the newly public company. Wedbush downgraded the stock to “Underperform” from “Neutral,” with a 12-month price goal of $14. This announcement caused the stock to tank 9% during early morning trading.
Analysts Gil Lauria and Aaron Turner believe that:
Our research indicates as many as 2 million items on Etsy (>5% of all merchandise) may potentially be either counterfeit or constitute trademark or copyright infringement. We believe the share of GMS may be greater considering Etsy has become a go-to destination for counterfeits. Counterfeit candidates include items infringing on Louis Vuitton, Chanel and Michael Kors, as well as a wide range of Disney and NFL brands. Sample of high risk listings indicates some violations may be 20x more likely on Etsy than eBay and even more likely than Alibaba’s Aliexpress.
Lauria and Turner note that the fees Etsy charges for listings and commission could be reduced if name brands start monitoring sellers on the company’s website; these costs make up nearly 20% of Etsy’s total revenue. They also believe that “questionable seller practices may draw increased scrutiny, eventually limiting volume growth [for the company].”
Back in April, Etsy made a killer market debut, opening the day at $16 per share and closing the day at $31 per share. The popular, Brooklyn-based company is known for kitschy crafts and homemade goods.
Here at Zacks, Etsy still stands at a Zacks Rank #3 (Hold). The stock rests at $20.74 in afternoon trading, having fallen almost $2.00 since market opening.
