In our continued coverage of e-commerce entrepreneurs and their broadening horizons of online user experiences, this post focuses on Etsy’s post-IPO journey.
Earlier I spoke about how the VC funding frenzy has resulted in astronomical valuations for companies making it difficult for them to maintain these valuations if and when they go public. Niche e-commerce player and Billion Dollar Unicorn club member Etsy (NASDAQ: ETSY) is one such player who has seen valuations fluctuate since they went public.
The much awaited IPO for Etsy was delivered last month when the company sold 13.3 million shares on the Nasdaq at $16 each at a valuation of $1.78 billion. On the day of listing, the stock more than doubled in value, taking their market capitalization to nearly $3.5 billion. It was a successful listing for a company with a B Corp certification, which implies that Etsy has stricter environmental, social, and financial disclosure targets to maintain than other for-profit organizations. Etsy is the second such company to go public.
But since its listing, investor’s expectations seem to have discounted Etsy’s status. Last month, Etsy reported their first quarter results since they went public and the market was not impressed. Revenues for the quarter grew 44% to $58.5 million, ahead of the Street’s target of $58 million. But losses grew to $0.01 per share in line with the market’s projections.
By segment, Etsy’s marketplace revenues increased 27% to $30.2 million and seller services revenues grew 72% to $27.3 million. They ended the quarter with over 1.4 million active sellers and 20.8 million active buyers. Mobile growth seemed slow considering that they reported only 7.5% growth in mobile visits and 6.2% in mobile sales.
Etsy did not give an outlook for the current quarter, but they did provide an insight into what to expect. For the quarter, Etsy is worried about foreign exchange rates. They expect the conditions to impact buyer behavior outside of the US. They also expect to increase spending in the current quarter as they plan to increase pace of hiring and marketing spend for customer acquisition.
Besides a disappointing financial performance, now Etsy also has to worry about rising competition. Recently, etailing giant Amazon announced their entry into the online crafts market. According to market reports, Amazon is reaching out to leading Etsy sellers through their Facebook accounts and via email to invite them to test Amazon’s Handmade site. The new site is expected to offer similar categories like Etsy. Etsy may have the first mover advantage over Amazon in the segment, but Etsy surely does not have either the market reach or the financial might that Amazon has. For instance, Amazon has an estimated 278 million active accounts compared with Etsy’s comparatively modest 20.8 million.
Another big concern for Etsy is the rise of counterfeit products. Etsy has taken pride in the strict norms they have put in place for products that can be sold on their site. But it appears that Etsy is finding it difficult to maintain its standards. Several users on Etsy have complained about the fact that sellers are listing products on sale on Etsy by purchasing goods from India and China. Sellers are thus flocking to other ecommerce platforms like Shopify. Market reports suggest that nearly 2 million items on Etsy’s site are either counterfeit or are infringing copyright and trademark laws. Etsy may not directly be held responsible for copyright violations, but such insinuations are likely to limit their growth. The unique user experience of the Etsy offering has been personalized, artisan products. If that promise starts to get diluted, then Etsy becomes like any other online retail site, and that would be a humongous problem.
Their stock is trading at $16.76 with a market capitalization of $1.86 billion. It touched a high of $35.74 soon after listing last month. It has fallen to nearly half since they went public in April this year amid worries of growing losses and slowing growth. Etsy had priced their stock at $16 per share for the IPO. The market got a bit ahead of itself out of the gate. Now, with the threat from Amazon, we’ll have to see how the company manages to preserve its soul while still delivering public market worthy growth and profits.
This segment is a part in the series : From E-Commerce to Web 3.0