On Thursday, the Brooklyn-based handmade and vintage item marketplace Etsy went public, debuting on the Nasdaq stock market. The early results show that investors are keen to get their money into tech firms. Etsy listed their initial public offering prices at $16. Within minutes, however, shares soared to more than $30. In just a few short hours, Etsy went from a valuation of around $1.8 billion to a valuation of nearly $4 billion. Quite a day.
Etsy was founded way back in 2005 as a marketplace for small, independent crafters, artists, and makers could sell their handmade and vintage goods, along with craft supplies. It began with a clear focus on the community, both the buyers and sellers. This is a trend that Etsy has carried through its 10 years of operations. The IPO was no different. Etsy’s CEO, Chad Dickerson, wrote a blog post detailing the lead up to the IPO. In that post, Dickerson paid special attention to the Etsy Community:
It was important to us that, in addition to the typical financial firms, individuals who are representative of our Etsy communities were able to participate in our IPO and join our community as investors. We allocated nearly 15% of the IPO to individual investors, as many companies do, but what’s different is the way we did it. We met with retail brokers in Paramus, NJ, Red Bank, NJ, Pittsburgh, Cleveland, Milwaukee, and Orland Park, IL (just outside Chicago) on the road show. We also reserved a portion of the individual investor shares for an IPO participation program with Morgan Stanley Smith Barney LLC. So that as many individuals as possible were able to participate, we capped the IPO participation program at $2,500 per person. For the first time in Etsy’s history, we were able to offer members of our community an opportunity to own a piece of Etsy.1
Ultimately, Etsy sees itself as an agent of change. The company is guided by its overarching mission to, “reimagine commerce in ways that build a more fulfilling and lasting world.”2 It is no secret that Etsy is more concerned with the health and well-being of its community than it is with posting a profit. In fact these concerns were laid out, quite explicitly in the IPO Prospectus:
- We have a history of operating losses and we may not achieve or maintain profitability in the future.
- Our quarterly operating results may fluctuate, which could cause our stock price to decline.
- Adherence to our values and our focus on long-term sustainability may negatively influence our short- or medium-term financial performance.3
The prospectus went on to note that Etsy has not turned a profit in the last 3 years, and they make no promise to do so: “We incurred net losses of $15.2 million, $0.8 million and $2.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. As of December 31, 2014, we had an accumulated deficit of $32.4 million. We may not achieve or maintain profitability in the future.”4
While the lack of consistent profits is problematic, Etsy has several things working in its favor for long-term success. Firstly, the company is growing at a tremendous rate. Again, this growth was laid out in the prospectus: “As of December 31, 2014, our marketplace had grown to 1.4 million active sellers and 19.8 million active buyers, up from 1.1 million active sellers and 14.0 million active buyers as of December 31, 2013.”5 To break that figure down even more, mobile has been a major driver of Etsy’s growth: “As of December 31, 2014, our mobile apps have been downloaded 21.8 million times, and mobile visits represented 53.2% of visits in 2014.”6
While Etsy does have a few red flags, as far as investors are concerned, they are clearly a successful company. In this day and age, where it is hard to base success on factors beyond profits, Etsy seems poised to do just that. There is a clear value proposition for buyers and sellers, a proposition which has the company set to continue its meteoric growth. Whether or not that means profits, though, will be the real question.
Top image via TheStreet.