Etsy is ‘very proactive’ in monitoring, removing counterfeit items: Analyst

JMP Securities (a Citizens Company) Equity Research Analyst Nick Jones joins Yahoo Finance Live to discuss e-commerce trends behind eBay, how Etsy is cracking down on counterfeiters, the outlook for Carvana shares, and Zillow's status within the real estate environment.

Video Transcript

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SEANA SMITH: Muted outlooks from Walmart and Home Depot raising some questions about the consumer and spending patterns. Now, we will get more data on the consumer this week when we hear from Etsy and eBay. Both are set to report their quarterly results. Here to discuss what to expect from those two names as well as what we've seen more broadly speaking from the consumer-facing names so far this quarter, we want to bring in Nick Jones, an Equity Research Analyst at JMP Securities, a Citizens company.

It's great to have you here. So let's start with eBay because I think some of the results here from Walmart, from Home Depot this morning raising some questions about what we could potentially see from other consumer-facing names. What are you expecting to hear from eBay?

NICK JONES: Yeah. So we think 4Q results are actually going to look pretty good. You know, the beauty of online companies is you can get a lot of third-party data and track them, whether it's site visits or app downloads. So we think eBay is actually looking pretty good into 4Q, and even the early data heading into 1Q, I think, actually looked relatively strong as well.

So what'll be interesting, particularly for eBay, is if they're, kind of, focused categories, where they're trying to get consumers to spend a little bit more money, versus, kind of, transactional users. They're not spending as much. If they can, kind of, keep those users coming back and spending more, I think that's really going to be in focus and maybe where the data breaks down a little bit.

But so far, eBay looks like it's going to have a solid 4Q, and 1Q so far looks like it'll probably be in line with expectations. But we'll see tomorrow.

DAVE BRIGGS: Yeah. If there's one positive to take away from Walmart, it's that increase in e-commerce that they saw far outpacing same-store sales. What about your expectations for Etsy?

NICK JONES: Yeah, same thing. 4Q looks pretty strong. Looks like they had a strong holiday season. The data suggests 4Q's going to come in line with consensus expectations. And we track the data monthly, and so far into 1Q, the data actually looks like it actually is pacing ahead of expectations.

So another one where we think the trends look pretty resilient-- Etsy's really been one of the strongest performers in e-commerce. Their upper funnel trends have been really resilient, still growing year-over-year where many companies are declining, like Home Depot or Walmart. So we think Etsy's in a similar situation where 4Q's going to look decent and 1Q commentary is probably going to be pretty strong as well.

SEANA SMITH: Nick, we did see some pressure on Etsy stock not too long ago following that report from the short seller Citron raising some questions. He was very critical of the operations, also saying that Etsy was one of the largest platforms for counterfeit goods. How do you look at that? What was your takeaway from those accusations?

NICK JONES: Yeah. So we did some digging and looked back at some historical precedent legal cases. EBay has actually faced this several times over the years and almost always has judged that the trademark holder is required to police it. And as long as the marketplace or platform takes things down and is proactive, they're really not held liable for that. Even some of the judgments that were made were relatively small in real-dollar terms, so even if I'm wrong in here, the financial impact to Etsy would be quite small.

And Etsy has-- they're very proactive. They have a lot of automated algorithms to try to find counterfeit items and remove them. They even put out a report every year. So, you know, we don't see that as a huge threat to Etsy at all.

DAVE BRIGGS: And when we put these two companies together, Etsy and eBay, what will that tell us, if you will, about the consumer?

NICK JONES: I think it will just show that at least e-commerce still shows some resilience. So far, the consumers are going to continue to look for unique items, and e-commerce platforms generally provide that option that you can't get in brick and mortar. So, you know, we think it'll show that consumers are still preferring e-commerce broadly, though.

I think there still are concerns around where spending is going to go. Saving rates are down, so far, so where will PCE trend, kind of, throughout the year, particularly as the Fed reacts to better jobs and the PMI numbers today? We'll see. Of the two, we think Etsy is the one to own. They have a robust platform, touching a lot of end markets, really strong brand recognition.

We really think, kind of, the tactical picks will come into play here, and we think Etsy's the one to own in e-commerce.

SEANA SMITH: All right, Nick, we got to switch gears here a little bit. Talk about Carvana because it is a stock that's usually one of the top trending tickers on our site. I know you covered the name. Shares are off, what, 92% over the past year. You have an outperform rating on the stock.

Just you and one other analyst has the equivalent of an outperform rating on Carvana. What do you see that most other people are missing right now?

SEANA SMITH: Yeah. So right now, there's, kind of, maximum fear that Carvana may go bankrupt, and there's a lot of reasons for that. You know, they made an acquisition. They have high interest expense. They are burning cash still. You know, we've done some math. We've done an analysis.

We don't think they're going to run out of cash anytime soon, and that will likely get to a more favorable market, where they could go raise capital or refinance debt and, kind of, navigate near-term headwinds. So, kind of, the-- they, kind of-- first factor here is, will they or won't they go bankrupt? And we don't think they're going to go bankrupt. So if you don't think they're going to go bankrupt, it's a very strong consumer offering that will continue to gain share over time.

It's just, kind of, got to get through near-term narrative challenges, if you will, as far as their balance sheet strength. So we think people are being overly punitive on their bankruptcy risk. We don't see them going bankrupt. We don't see them running out of cash.

We think they have plenty of options to, kind of, navigate near-term headwinds. So, because of that, when you see the stock down at these levels, we think it's a very, very compelling price point to enter the stock.

DAVE BRIGGS: Hmm. Wow. You also cover Zillow, who recently reported earnings. What did they tell you about the online environment in real estate, and what's to come overall in the real estate sector?

NICK JONES: Yeah. So what was really interesting about the recent call was more first-time homebuyers came back, where, kind of, in the first half of '22, it was a lot of cash buyers. But Zillow benefited by more first-time homebuyers coming back, which is encouraging because that's a lot of the millennial group that are still looking to buy homes. All that said, you know, [INAUDIBLE] isn't really the floor yet in terms of how, maybe, bad the residential real estate environment could get.

So as rates keep going up, that's going to continue to pressure the ecosystem and transaction volume. So all said on Zillow, really strong company. But there's a lot of headwinds, and they're a very mature company, so we see them potentially having some pressures as we get through the year and really got to keep an eye on what's going to happen to mortgage rates and while there are not, kind of, these millennials and other groups of people that haven't really bought their first home yet come in and are willing to pay these interest rates and the prices that are still out there.

Because if you look at the data, the prices really haven't pulled back yet. They've pulled back somewhat, but not as much as you would expect given the rates.

DAVE BRIGGS: So you think the worst is still out there, still ahead of us?

NICK JONES: Potentially. It could just be sideways. It may not get worse. Right now, it does not seem like it's going to get much better. So it seems like sideways, so worse is probably the outcome from here.