Etsy (Nasdaq: ETSY) went public earlier this year, a much awaited IPO at an $1.8 billion valuation. But since listing, serious issues with the company have resulted in a tumbling valuation under public market scrutiny. At its current stock price, Etsy is still appearing above the billion dollar mark, but barely so. And its trajectory indicates that Etsy is on its way from being a prized Unicorn to a faltering Unicorpse.
New York-based Etsy was founded in 2005 when Rob Kalin, its co-founder realized that there wasn’t a viable online marketplace to sell handmade wooden computers. Along with his team of Chris Maguire and Haim Shoppik, the trio went about building a site dedicated to bringing a handmade craft fair online.
Etsy has been received well by the market. By following strict norms on defining handmade and vintage product categories, the company has created a niche for itself. Etsy ended last year with over 54 million members including 1.4 million active sellers and 19.8 million active buyers. Last year, Etsy sellers generated gross sales of $1.93 billion and Etsy generated revenues of $195.6 million. It ended the year with a net loss of $15.2 million.
The company had raised $97.3 million in venture funding from investors including Glynn Capital Management, Index Ventures, Union Square Ventures, Accel Partners, Acton Capital Partners, Hubert Burda Media, Manatt Venture Fund, Caterina Fake, Stewart Butterfield, Joshua Schachter, Albert Wenger, Spencer Ain, Judson Ain, and Sean Meenan. Earlier this year, Etsy went public by listing on the Nasdaq at a valuation of $1.8 billion. But since listing its valuation has fallen. The company has lost 75% of its value since it went public and things don’t appear to be improving soon.
For the September ended quarter, Etsy saw revenues grow 38% over the year to $65.7 million. The market was looking for revenues of $66.2 million for the quarter. Loss per share of $0.06 was in line with the Street’s forecast.
By segment, marketplace revenue grew 19.7% over the year to $32.2 million and Seller Services revenue grew 66.7% to $32.3 million. The company reported over $1.6 billion in gross merchandise sales year-to-date and is now supporting over 1.5 million active sellers and 22.6 million active buyers.
While revenues may be growing, operating metrics remain a reason for worry. Etsy’s active buyer growth decelerated to 24.9%, and active seller growth decelerated to 19.4%. Additionally, Etsy is projecting lower margins for the next quarter as it continues to see a decline in the higher margin segment of Promoted Listing and increased marketing spending.
Etsy’s Improving Offerings
To keep with the market demands, Etsy recently launched a new same-day-delivery service called Etsy ASAP in partnership with Postmates courier services. It is charging a flat $20 fee from its shoppers to enable them to receive same-day or next-day delivery of Etsy’s products from local sellers. The service is being made available in select parts of Manhattan, Brooklyn, and Queens. Sellers offering the pilot service will be able to schedule a delivery with a Postmates courier upon receiving orders and buyers will be able to track deliveries in real time.
Recently, Etsy had also improved their mobile offering by adding a local feature. With the enhanced feature, Etsy’s consumers are able to shop on the go and find Etsy items and sellers close to their location. The service will feature both local events and local shops.
But despite its moves, Etsy has been under a lot of pressure. Earlier this year, Amazon launched its version of Etsy in the form of Amazon Handmade. Amazon has invested heavily in the offering by inviting sellers to list exclusively on Handmade or on both its platforms. Unlike Etsy, Amazon is also offering free listing of products. But Amazon will make money by charging a 12% commission from the sales made through their platform. Amazon also has a bigger user base at more than 200 million buyers compared with the modest 22.6 million that Etsy has. Overall, Amazon is a mighty competitor for Etsy to beat and the market has realized that.
Added to that are concerns on rising customer acquisition costs. During the recently reported quarter, Etsy’s marketing costs increased 88% over the year. Clearly profits aren’t going to come soon for Etsy.
Etsy’s stock is trading at $9.79 with a market capitalization of $1.1 billion. It touched a high of $35.74 in April this year. The stock had listed in April at a price of $16 apiece. The decline in its valuation is attributed to the continuing concerns about its ability to compete with Amazon and the mixed results the company delivers on earnings.
While I love Etsy’s service, and think that the company has pulled together a nice community, Amazon is a formidable competitor, and has the ability to crush them. The stock’s trajectory, unfortunately, is downward, and in 2016, it will likely head well below its billion dollar market cap.
This segment is a part in the series : From Unicorn to Unicorpse