It was a good week for Etsy (NASDAQ:ETSY) investors. Shares of the arts-and-crafts marketplace operator soared 18.2%, after the company conceded that it's considering strategic alternatives.

The fireworks began after the market close on Monday when activist investors TPG Group and Dragoneer reported a combined 8% stake in Etsy. They announced that the intent in taking a sizable stake in the out-of-favor e-commerce platform is to engage in talks with Etsy regarding strategic options. Etsy's CEO said his company is now "reviewing" its strategic and operational plans.

The news was enough to send shares of Etsy into positive territory for 2017, but it's still trading below the $16 price it went public at two years ago.  

Etsy headquarters on the Hudson.

Image source: Etsy.

State of the arts

It's tough to sustain stock surges that result from buyout speculation. Activists gravitate to broken companies, and the sometimes heady gains aren't likely to stick if an acquisition at a premium doesn't materialize. 

Etsy is in a funk. Revenue growth has decelerated in nine of the past 10 quarters, according to data from S&P Global Market Intelligence, with year-over-year increases going from 59% to 18% in that time. Etsy shares took a hit earlier this month, after the company posted first-quarter results that fell short of Wall Street's sales, earnings, and EBITDA forecasts. Etsy announced that it will lay off 8% of its staff in an effort to streamline costs and announced management changes, including a new CEO.

Etsy stock also took a hit earlier this year, after the company surprised analysts with a quarterly deficit in its holiday-potent fourth quarter. Etsy blamed the red ink on buyout-related expenses and the launch of its first-ever global brand campaign. We already know the campaign wasn't very successful, since it wasn't enough to prevent the dot-com laggard from posting its weakest top-line growth as a public company.

Analysts are torn on the activist news. Blake Harper at Loop Capital figures last week's pop is a good opportunity for shareholders to take to the sidelines. He's not budging from his earlier price target of $13, and with the stock trading just above that mark now, his "buy" recommendation is now a "hold." He thinks a sale of the company isn't happening anytime soon, as the new management team will be likely to give its own turnaround strategy a shot first.

Tom Forte at Maxim has a more upbeat view. He's pushing his price target from $13 to $17 and reiterating his bullish call on Etsy stock. Forte sees this as a win-win, as the new management team will either succeed in getting Etsy's act together, or it will put itself up for sale. He sees Etsy going for at least $16 a share in a sale. 

There's no easy fix, and layoffs are usually an indication of belt-tightening and not a company that's about to kick things up into a higher gear. Last week's gains won't last in the near term if Etsy isn't put up for sale or if there's reason to believe someone won't pay even more for the stock than last week's gains. Management will have to start accelerating sales or improving Etsy's bottom line for the stock to justify these gains without a sale, and we're a little more than two months away from the next quarterly update on that front. 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Etsy. The Motley Fool has a disclosure policy.