The homemade arts and crafts site Etsy recently launched IPO just this week. The company has initial prices set at $16 per share, but shares ended up jumping 86% to close the day at $30 per share. Etsy management sold 16.7 million shares and raised $287 million in funding from the IPO. Despite not turning a profit, Etsy’s IPO results give it a $2 billion valuation. However, Etsy has seen steady revenue growth over the past few years, which could be one reason investors gave the stock a break. In 2012, Etsy posted revenues of $74.6 million, $125 million in 2013 and $195.59 million in 2014. Now that the IPO “party” is over, what does Wedbush have to say about Etsy’s valuation and long term growth prospects?
Wedbush gives $14 price target, sizes up competition
Wedbush analysts certainly voice their concern on the valuation aspect of Etsy’s IPO. However, the analysts do see steady near term growth rates, but warn of immoral sellers potentially lurking. Wedbush analysts were able to calculate Etsy’s price to earnings, Enterprise value/sales, enterprise value/EBITDA, and revenue growth estimates. The research found that Etsy’s valuation gives it an astonishing price to earnings of 209.7, and EV/sales of 9.4, EV/EBITDA of 84.2 (not typos) and revenue growth 2016 estimate of 40%. Analysts chose to focus in on EBITDA as the chief comparable data for Etsy and other ecommerce giants. With 84.2 EBITDA, analysts are very concerned that the metric is beyond the high end of spectrum. Additionally, Wedbush analysts essentially squashed the idea that Etsy could be acquired because the main competitors such as Ebay, Amazon, and Alibaba already have Etsy’s customers as well.
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Etsy is extremely expensive and overvalued
Essentially, the Wedbush analysts are suggesting that shares of Etsy are very overvalued due to its IPO jump. With the arts and crafts company unable to turn a profit, it is certainly shocking to see valuations of $2 billion, price to earnings of 209, EBITDA of 84. However, with the price target of $14, Wedbush analysts believe that the post-IPO hype will eventually cool and shares could fall to a more fair valuation of the company. However, for now, analysts will maintain their neutral rating and $14 price target.
Overall, Etsy had a successful IPO, but it is a little bothersome that we are once again getting companies valued in the billions of dollars range when they have not made any money profits wise. Ultimately, this type of over bullishness has come back to haunt investors in the past and therefore I would remain cautious before jumping in.