Etsy stock slides as Morgan Stanley says ‘cohort dynamics have degraded meaningfully’
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Etsy (NASDAQ:ETSY) and eBay (EBAY) shares declined sharply on Tuesday after Morgan Stanley advised clients that its new model for lifetime value and customer acquisition costs are not encouraging for the former.

The analysis suggested that Etsy is âhitting its limitsâ for profitability after the âlow-hanging fruit has largely been pickedâ amidst the pandemic. Overall, the bankâs analysts advised that the pandemic âtransformed ETSY from a fast growing to mature marketplaceâ which has negative implications for valuation considerations in their view.

âFrom here we believe ETSY faces a difficult trade-off between increasing CAC to maintain GMS growth or accepting lower growth with a stable CAC,â the analysis stated. âAs marketing is ETSY's largest non-variable cost bucket and appears to be seeing diseconomies of scale, we find it difficult to believe ETSY can sustainably grow GMS and materially expand EBITDA margin without pushing frequency.â

The team maintained an equal-weight rating on the stock and revised their price target to $74 from $79. Shares of Etsy (ETSY) fell over 6% during Tuesdayâs trading, with the implications of the outlook also hitting eBay (EBAY) as shares slipped 4.3% on Tuesday afternoon. 
Shares of eBay have trended essentially flat since posting a better-than-feared Q1 print.