Investors throw money at Etsy IPO
Shares of Etsy enjoyed a meteoric rise during their first day of trading on April 16, closing at $30 a share after shares in the initial public offering were priced at $16.
The huge surge in first day trading of an online company with no real assets and an unprofitable business is reminiscent of the dot com bubble days of the late 90’s. However, some investors appear to be buying into Etsy’s feel good mission of connecting people and reimagining commerce, as sort of the anti-Walmart or Amazon. Etsy wants to reimagine commerce in ways that build a more fulfilling and lasting world.
The company boasts 1.4 million active sellers and 19.8 million active buyers. The company’s credibility is also helped by the fact it was founded far away from Silicon Valley, in Brooklyn, New York of all places in 2005 as a marketplace for handmade goods and craft supplies.
“We are building a human, authentic and community-centric global and local marketplace,” according to the company’s registration statement filed with the Securities and Exchange Commission in advance of the IPO. “We are committed to using the power of business to create a better world through our platform, our members, our employees and the communities we serve.”
Guiding principles the company says are core to its mission include: making it easy to find and buy unique goods from real people every day, on any platform, online and offline, anywhere in the world, helping creative entrepreneurs start, responsibly scale and enjoy their businesses with Etsy and communicating the power of human connection whenever anyone experiences Etsy. Etsy plans to make money by helping its sellers make money and by charging fees along the way.
Etsy gets paid for the services it provides sellers to use its platform and also collects fees for completed transactions, product listings and prominent placements. A fair bit of volume is transacted on the Etsy platform. Last year, the company’s active sellers, a loosely applied term referring to those who executed a transaction in the prior 12 months, generated merchandise sales of $1.93 billion yielding Etsy revenue of $195.6 million and a net loss of $15.2 million.
Imagine if a retailer with physical stores and a similar financial performance sought to access the capital markets with an IPO. For starters, the CEO likely couldn’t even get a meeting with Goldman Sachs or J.P. Morgan, the big banks who handled Etsy’s IPO. And if he or she did, investors aren’t clamoring for unprofitable retailers the way they are hot, new, sexy companies promising to tap into global mega-trends and re-invent commerce.
At the end of the day, Etsy functions as marketplace and as such is dependent on sellers to use its platform rather than those offered by other such as Amazon, Walmart, Sears, Ebay or Alibaba with access to far more users. Etsy makes the standard disclaimer in its registration statement, common for emerging companies, about having a history of operating losses and uncertain prospects to achieve or even maintain future profitability. Clearly, investors dismissed that admonition in their zeal to get in on the Etsy revolution.