Etsy (ETSY) has returned to mid-single-digit gross merchandise sales growth in the first half of 2026, but the durability of that momentum remains uncertain, Morgan Stanley said in a report Thursday.

Q1 GMS rose 5.5% year over year, with the company guiding to 3% to 5% growth in the second quarter, marking a return to mid-single-digit expansion for the "first time since 2021," the report said.

Cohort data showed signs of stabilization, with "habitual" and "repeat" buyers flattening sequentially after prior declines, lower churn, moderating customer acquisition costs and improved GMS per buyer, the investment bank said, adding that "marketing efficiency" has also improved.

However, much of the recent growth may be driven by "temporary" factors, including pricing, favorable macro trends, foreign exchange and easier comparisons, and continues to model low-single-digit GMS growth over the medium term, Morgan Stanley said.

Morgan Stanley raised its 2026 and 2027 GMS estimates by about 2% and earnings before interest, taxes, depreciation, and amortization forecasts by roughly 5%, citing improved "profitability" and expectations for continued net active buyer additions.

It also increased its price target on Etsy to $64 from $60 while maintaining an equal-weight rating, citing a "balanced risk-reward" profile.

Price: 64.09, Change: -5.51, Percent Change: -7.92