Etsy Stock Breaks Above Its 20-Day Moving Average on Depop Sale. Does That Make ETSY a Buy Here?

Etsy (ETSY) stock closed nearly 10% higher on Feb. 19, after the e-commerce firm divested Depop, its fashion resale platform, to eBay (EBAY) for $1.2 billion in cash. 

On Thursday, Etsy reported better-than-expected per-share earnings for its fiscal Q4 as well, which helped its stock price push briefly above its 20-day moving average (MA). While this technical setup often precedes a relief rally, neither fourth-quarter release nor Depop sale warrant buying ETSY stock at current levels. 

Despite today’s gains, Etsy remains down about 25% versus its year-to-date high. 

Investing in Etsy Stock Is a Risky Proposition

Etsy sold its fashion resale platform for $1.2 billion, much less than the $1.62 billion that it spent on buying it nearly five years ago. The divestiture completes Etsy’s exit from its failed “house of brands” strategy — a diversification push that evidently didn’t create shareholder value. 

Investors are cautioned against chasing the rally in ETSY shares also because its gross merchandise sales declined significantly on a currency-neutral basis in Q4 as the company’s core marketplace experienced contraction instead of growth. 

Moreover, the NYSE-listed firm is losing its ability to attract active buyers as evidenced by a 2% year-over-year decline in users to 93.54 million, despite aggressive marketing investments. 

Options Data Suggests Downside Head in ETSY Shares

Etsy stock remains unattractive as a long-term holding also because the company guided for up to $2.43 billion in gross merchandise sales for its fiscal Q1 — a huge step down from $2.8 billion last year. 

This signals deteriorating consumer demand as inflationary pressures and economic uncertainty continues to weigh on discretionary spending. 

Moreover, since ETSY remains decisively below its longer-term MAs (50-day, 100-day, 200-day), it’s reasonable to assume that the stock’s broader downtrend remains intact.  

According to Barchart, the put-to-call ratio on options contracts expiring early March sits at 4.56x currently, indicating significant skew to the downside. The lower price of $43.83 on those contracts suggests Etsy could lose nearly 9% over the next few weeks. 

How Wall Street Recommends Playing Etsy

Despite aforementioned headwinds, Wall Street firms maintain a mean target of about $66 on Etsy shares. 

However, downward revisions could follow after the company’s muted Q4 release on Feb. 19. 

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