Here's why one Wall Street firm thinks Etsy will be able to keep Amazon off its turf (ETSY)

Sarah Jacobs

• Nomura Instinet initiative coverage of Etsy Thursday with a buy rating and a price target of $70.
• Shares gained 3.5% on the news Thursday before climbing another 4% on Friday.
• Etsy is well positioned to maintain its lead in the vintage and crafted good space, even against Amazon Handmade, Nomura said. 
• The analysts outlined three reasons for their bullish rating and price target. 
• Watch Etsy trade live on Markets Insider.

Etsy, the online marketplace for crafted and vintage goods, has held its own even as competitors like Amazon edge into its turf. 

It's likely to maintain its lead, according to analysts at Nomura Instinet, who initiated coverage of the company with a "buy" rating and a $70 price target. Shares gained 3.5% on the news Thursday before climbing another 4% on Friday.

"Etsy has proven that the large conglomerate platforms don't always win, especially when the category is anything but a commodity," the analysts wrote. 

The positive rating is because Etsy has grown consistently amidst an increasingly tough environment for traditional retailers, Nomura said. Etsy has held its own against Amazon as it ramps up competitor Amazon Handmade, and is likely to hold the top spot because of how the platform helps sellers advertise. In addition, it's been able to succeed while "educating and arming sellers with the right tools to succeed," Nomura said. 

Nomura's valuation of the online marketplace is 25.5 times the adjusted EBITDA estimate for the company, according to the note. Here are three key reasons why Nomura is bullish on Etsy.

Etsy's addressable market is between $140 billion and $170 billion by 2023 Nomura estimates. Currently, Etsy holds about 4% of the total market share currently, and Nomura expects it to grow to 5% by 2021. Of that market, the US is the largest region, representing about $70 billion, but Etsy sells in the UK, Australia, Germany, France, and Canada as well, according to the note. 

Etsy has rethought its pricing initiatives and made changes that have helped move the business forward, according to the note. Recently, Etsy has been encouraging sellers to offer free shipping on items over $35, which has reconciled some issues customers have had with shipping prices in the past, Nomura said. They also increased their take rate from 3.5% to 5% after doing "considerable testing" on the site and new business models, Nomura wrote.

In addition, the company recently combined its two advertising programs for sellers, Promoted Listings and Google shopping, into one Etsy Ads product. While Nomura says they have yet to see the impact, they believe it's "good for sellers, buyers, and the platform as a whole." 

Etsy acquired Reverb, a marketplace for new, used, and vintage music gear, in August. This opens a new vertical for Etsy, and provides upside to the numbers, Nomura said. Reverb generated $36 million in revenue in 2018, according to the note, and had a net loss of $10 million mostly due to advertising and marketing expenses. These will likely go down when Reverb is integrated into Etsy, the analysts wrote. 

Etsy is up more than 17% year to date. 

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