Shares of Etsy fall 9 percent as analyst downgrades stock on concerns about counterfeiting

MarketsAssociated Press

Shares of crafty e-commerce site Etsy Inc. fell Monday after an analyst said there is a bigger-than-expected risk for fraud on the site and downgraded the stock to "Underperform."

Shares fell nearly 9 percent in afternoon trading.

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Etsy went public to much fanfare in April, with the stock nearly doubling from its IPO price on the first day of trading as investors clamored for a well-known name in the retail industry.

At the time, Wedbush analyst Gil Luria initiated coverage of the stock at "Neutral." But he downgraded the stock on Monday to "Underperform," which means he recommends that investors sell the stock.

In a client note, Luria said that he expects Etsy to have "rapid near-term growth" as it increases marketing spending. But he added that after talking to intellectual property lawyers, he believes that "questionable seller practices may draw increased scrutiny, eventually limiting volume growth."

He said research indicates that as many as 2 million items on Etsy may potentially be either counterfeit or constitute trademark or copyright infringement. While Etsy Is unlikely to be directly liable for the infringements, he said, it could still limit volume growth.

"If Etsy chooses to continue to ignore these potential violations, we believe it could tarnish its brand with both buyers and sellers," he wrote.

Etsy did not respond to a request for comment.

Shares of the company fell $1.86, or 8.2 percent to $20.85 in afternoon trading. The stock had been down about 37 percent from its all-time high of $35.74.