Etsy stock shares rose 3% today despite Loop Capital Markets Analyst Laura Champine downgrading the stock rating to Buy from Hold.

In order to better represent the consensus of analysts, the analyst also decreased sales estimates for this and next years. The new price target is $140.00 per share. This represents a decrease from $185.00.

Although ETSY exceeded expectations in the last quarter of 2018, we believe that the macroeconomic climate has significantly worsened from our February note. GMS is expected to grow 15% this year, compared with our previous estimate of 19%. GMS is now expected to grow by 20% in the long term, as opposed to 25% that we had previously estimated (which was above management’s long-term outlook). Our earnings estimates were lower than consensus. However, they are being lowered today due to additional inflation from digital advertising. We have heard from many consumer businesses that digital marketing inflation is in the range of 20-40%. Champine stated in a client note that consumers are distracted and driving up CAC higher than inflation.

An additional reason Etsy was downgraded by the analyst is that she perceives negative near-term catalysts.

There are significant risks in our expectations regarding sales and profitability for this year. Our new estimates could prove to be aggressive, barring any easing inflation.

The analyst is optimistic about the stock’s long-term prospects despite these short-term problems.

According to the analyst, we believe that Etsy’s differentiated offerings, brand equity and improved search functionality will lead to long-term growth.

By Senad Karaahmetovic