What happened

Shares of e-commerce marketplace Etsy (ETSY 3.38%) gained on Wednesday, after a Wall Street firm pointed out some promising trends behind the scenes. As of 10:10 a.m. ET, Etsy stock was up 6%. 

So what

According to Bloomberg, Evercore ISI analyst Shweta Khajuria is seeing positive trends when it comes to downloads of the Etsy app. And the analyst believes this bodes well for engagement and sales during this important holiday quarter.

Ironically enough, Khajuria still has Etsy on Evercore's "tactical underperform" list. And her price target for Etsy stock is $115 per share, implying almost 14% downside from where shares traded as of this writing. While the analyst appears bullish on Etsy long-term, and current app download data looks promising, Khajuria believes this is a difficult economy and Etsy stock could underperform the market for that reason.

Now what

As a cautionary note, strong download data doesn't necessarily mean that business is booming for this consumer-discretionary stock. According to third-party app analytics company Appfigures, Etsy had its best-ever April and May for downloads of its app. However, gross merchandise sales fell 0.4% and 3.3% in the second quarter and third quarter respectively when compared to the prior-year quarters.

For the upcoming fourth quarter, Etsy guided for revenue of $700 million to $780 million -- a wide range reflecting management's uncertainty. Perhaps Evercore's download data suggests the company could generate revenue toward the top of this range and grow Q4 revenue compared to the $717 million it generated in the fourth quarter of 2021. But at the same time, I'd caution against getting too optimistic on Etsy based on hazy download data.

Etsy ended Q3 with 93 million active buyers and 7.4 million active sellers. To me, the real question isn't whether Etsy can have a good holiday quarter this year -- sales can ebb and flow in this business. Rather, investors should ask how many more users the platform can gain and retain over the long haul, which I believe will have greater bearing on the stock price.