Why Etsy Inc. Shares Jumped Today

By Jeremy BowmanMarketsFool.com

Image source: Etsy.

What:Shares of the crafty e-commerce businessEtsy Inc.(NASDAQ: ETSY) surged today afterCitigroupinitiated coverage with a "buy" rating and a bullish analyst note. By 12:35 p.m. EDT, the stock had gained 14.1%.

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So what:Weighing in on the struggling e-commerce site, Citi said, "consensus revenue estimates are far too conservative," adding that the company's seller services business presents a particularly promising growth opportunity.

Citi also said the online marketplace has become the clear leader in the artisan segment of e-commerce, with 1.6 million active sellers and 25 million buyers in the last quarter.

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Now what:Etsy does have a brand advantage when it comes to unique handcrafted products on the web, but the company has been unable to translate that into meaningful profits. E-commerce has proven to be a brutally competitive industry for competitors big and small due toAmazon.com'saggressive pricing and to the nature of the sector, which has a way of ironing out competitive advantages and differentiation.

Even after today's bounce, Etsy shares are still down more than 60% since its 2015 IPO. While the company has been growing revenue at a solid clip, delivering substantial profit may prove more difficult than investors hope.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool owns shares of Etsy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.