Image source: Etsy.

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

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.

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 to's aggressive 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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