Etsy (ETSY) is facing a "challenging" path ahead to accelerate its near-term gross merchandise sales growth amid ongoing pressure in buyer frequency, Morgan Stanley said in a Thursday note.

The company reported Q4 net income Thursday of $0.92 per diluted share, down from $1.03 a year earlier, while revenue increased to $881.6 million from $852.2 million. Etsy also said it expects Q1 gross merchandise sales of $2.38 billion to $2.43 billion.

According to Morgan Stanley, both the results and guidance were in line with market expectations, but the company's habitual buyers declined sequentially and contracted as a portion of the mix for the 16th consecutive quarter.

Etsy's $1.2 billion sale of Depop, however, could unlock value and lead to "outsized" buybacks or debt repayment, the investment firm noted.

Morgan Stanley lowered its price target on Etsy to $60 from $65, with an equal-weight rating.

Price: 51.07, Change: +2.93, Percent Change: +6.09