For anyone who has ever shopped on online marketplace Etsy (ETSY), you know that finding the things you want can be both a joy and a trial. It is a challenge, but a challenge that often ends with either finding what you want or something you never knew you wanted. But Etsy wants to make the process simpler, and has added artificial intelligence (AI) to its search functions. That news gave Etsy an edge with investors, who sent shares up nearly 2% in Monday morning’s trading.
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Some call it “…a flea market the size of a small country,” and that is not out of line. Reports suggest Etsy has over 5.6 million vendors on its site right now, and Finland has just a shade over 5.6 million people at last report. Thus, you can imagine how difficult it might be to find one particular tchotchke in a flea market the size of Finland. This is where Etsy moved to make things a little easier.
Etsy brought in BigQuery, Vertex AI and the Gemini models from Google Cloud to produce a whole new search capability that can read listings, images and text included, to personalize every buyer’s home feed. The results are telling; in the last quarter, Etsy landed the first sequential gain it had seen in the previous eight quarters, reports note. Etsy calls this new model “algotorial curation,” which starts with human merchandising experts and then gets augmented by generative AI.
Not Everyone Is Pleased
Etsy’s previous strategy was known as the “house of brands” approach, and many preferred it. But Etsy ditched that strategy, which led to Morningstar analysts re-evaluating their position on Etsy. Morningstar analysts dropped Etsy down from a price target of $74 per share to $70, and also reduced the firm’s “moat” from wide to narrow.
Morningstar also maintained High Uncertainty and Standard Capital Allocation Ratings. Morningstar looks for Etsy’s revenue to drop from a compound annual growth rate (CAGR) of 10.9% to 7.4% instead, mostly as “non-core assets” are getting removed and discretionary spending takes a negative turn. The good news, though, is that Etsy’s “…differentiated, niche inventory” is likely to insulate it from the downturn seen at more conventional retailers.
Is Etsy Stock Worth Buying?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on ETSY stock based on seven Buys, 12 Holds and one Sell assigned in the past three months, as indicated by the graphic below. After a 23.47% rally in its share price over the past year, the average ETSY price target of $72.50 per share implies 22.67% downside risk.
