Etsy's (ETSY) core gross merchandise sales growth is likely to re-accelerate in next year or two, potentially giving the company a "more balanced" catalyst path, Morgan Stanley said in a Sunday note.

The investment firm said it expects easing comps and a reduced tariff risk to boost the company's gross merchandise sales and accelerate revenue growth with continued take rate expansion. Etsy also faces a better macro environment and potential benefits from foreign exchange, Morgan Stanley added.

"We view increased spend per buyer or frequency as the primary path for ETSY to reach sustainable, profitable growth... but see frequency gains as highly difficult," Morgan Stanley said. The investment firm noted its ongoing concerns on Etsy's ability to drive frequency but said this is already factored into fiscal 2028 expectations.

Morgan Stanley upgraded Etsy to equal-weight from underweight, with a higher price target of $50 from $38.

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