What happened

Shares of Etsy (ETSY -2.17%) surged higher on Tuesday, climbing as much as 5.5%. At the end of the day, the stock was still up 5%.

While the broader market rally no doubt added fuel to its ascent, the catalyst that sent the e-commerce platform higher was the initiation of coverage by a Wall Street analyst.

So what

Guggenheim analyst Steven Forbes assumed coverage of Etsy with a buy rating, while simultaneously issuing a $105 price target on the stock. It seems the analyst was merely playing catch up, as the price target was nearly identical to the stock's closing price on Monday, when it ended the trading day at $104.99.

The analyst didn't provide any specific guidance as to why he chose this particular price target or the buy rating, as he picked up the stock coverage from another analyst who left the firm.

Back in July, Guggenheim analyst Seth Sigman raised the firm's price target on Etsy to $105 from $101 while maintaining a buy rating on the shares. At the time, the analyst was upbeat on the company's second-quarter results and third-quarter guidance, but believed the consensus estimates for Q4 were too optimistic given the macroeconomic headwinds. While Sigman lowered his estimate for gross merchandise sales (GMS) -- the total value of products sold on the platform -- he increased his EBITDA estimates, as he believed Etsy could improve its take rate, or the amount it earned from each sale.

Now what

When Etsy reported its second-quarter results, the challenges outweighed any progress the company had made. While revenue climbed 11% year over year, higher costs weighed on profits, sending earnings per share down 25%. More problematic, however, was the decline in GMS. Additionally, while its active and repeat buyers increased, that was the result of the company's recent acquisition, as both fell on an organic basis.  

The inconsistency between growing revenue and lower GMS was misleading, however, the result of the recent increase in Etsy's seller transaction fee, which jumped to 6.5% from 5% earlier this year. If not for the higher fees, revenue would have tanked as well.

Given the ongoing macroeconomic challenges, investors should wait for improvement in Etsy's GMS before buying shares.