Needham turned more bullish on Etsy Inc. (NYSE:ETSY) after first-quarter earnings, saying the online marketplace may have reached a key growth inflection point.

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The firm reiterated its Buy rating and raised its price target to $85 from $65, implying upside from Etsy's recent price of $64.00.  

Analyst Bernie McTernan said the company's first-quarter performance showed Etsy is "filling the growth hole" left by Depop on its own, helped by improving marketplace trends and stronger product execution.

Needham said Etsy's core marketplace delivered its fourth straight quarter of year-over-year acceleration and returned to positive gross merchandise sales growth for the first time in nearly three years. 

Mobile App Momentum Drives Bullish View

The firm attributed the improvement less to a broad consumer rebound and more to Etsy's technology investments, including better discovery, personalization and app engagement.

The mobile app stood out as a key driver. Needham said the app is now nearing 50% of GMS and grew double digits, with app GMS up 11.2% year over year. 

That represented 460 basis points of acceleration and outpaced non-app GMS by 10 percentage points, helping drive 240 basis points of year-over-year penetration gains.

The firm also pointed to Etsy's use of AI-generated buyer profiles, which map shopper tastes and interests to marketplace inventory. Needham said those tools could improve search, discovery, engagement and purchase frequency over time, especially in a marketplace built around unique goods.

First-quarter adjusted EBITDA came in 6% above Needham's estimate, driven by better GMS and margins. The firm raised its 2026 revenue, GMS and adjusted EBITDA estimates by 3%, 2% and 5%, respectively, while still modeling some deceleration in GMS growth through the rest of the year.

Depop Proceeds Could Fuel Buybacks

The firm said Etsy's improving growth profile also increases financial flexibility. 

With the marketplace appearing able to offset the growth contribution previously expected from Depop, Needham said the roughly $1.2 billion in Depop proceeds could be used more offensively, including for share repurchases.

Risks remain, including weak discretionary spending, competition from Temu and Shein and a crowded e-commerce market. 

Still, Needham said continued execution across discovery, personalization and mobile could support further upside to estimates and valuation.

ETSY Price Action: Etsy shares were down 0.15% at $64.50 at the time of publication Friday, according to Benzinga Pro data.

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