Etsy -10.2% on Wedbush downgrade; copyright violations cited

|By:, SA News Editor

Citing the prevalence of  counterfeit and copyright-infringing goods on its marketplace, Wedbush's Gil Luria has downgraded ETSY to Underperform; his target remains at $14.

Luria: "Our research indicates as many as 2 million items on Etsy (>5% of all merchandise) may potentially be either counterfeit or constitute trademark or copyright infringement. We believe the share of GMS may be greater considering Etsy has become a go-to destination for counterfeits. Counterfeit candidates include items infringing on Louis Vuitton, Chanel and Michael Kors, as well as a wide range of Disney and NFL brands."

He does qualify his remarks by noting Etsy might not be held legally responsible for infringing goods - in a suit filed against eBay by Tiffany, a court declared it was the responsibility of a trademark owner to find counterfeit goods and send takedown requests. Alibaba (saw 40% GMV growth last quarter for its core marketplaces) has long contended with counterfeit goods complaints.

Luria launched coverage on Etsy at Neutral just before its April IPO, while citing concerns about valuation, counterfeits, and market size. He reiterates his valuation concerns today, noting shares traded at 66x EBITDA going into today.

Etsy has fallen to $20.45 premarket. It's now up 28% from a $16 IPO price, and down 34% from a post-IPO opening trade of $31.00. Q1 results arrive on May 19.

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