5 Facts You Need to Know About the Etsy IPO
The popular online marketplace Etsy announced plans for an IPO yesterday. They filed the necessary S-1 with the SEC in order to be listed on the NASDAQ under the ticker ETSY. The ink on the paperwork is still wet, but we have dug through the documents, looked at the market, and put together these 5 facts you need to know about the Etsy IPO.
The Company Is Losing Money
Not to put too fine a point on it, but Etsy is losing millions of dollars every year. They've been in business since 2009 and operating at a loss since 2012, so this IPO is an attempt to finally break the trend and close the fiscal year in the black.
This Has Been Done Before
In 1998, eBay (EBAY) went public with a similarly-sized user base and an almost identical revenue outlook. eBay found a share price of $18 out of the gate and quickly saw that shoot to $54, before leveling off at $47. Today they trade for just over $59 per share.
However, there are two big difference between the two companies. One is the amount of shares being brought to the market -- eBay (EBAY) went public with just 3.5 million shares of common stock, and Etsy is set to release of 195 million. The other difference is that eBay was profitable going into its IPO, and Etsy is not.
Etsy Wants To Raise Between $100M - $300M
In order to make the improvements to their infrastructure and headquarters, expand their staff, and grow their sales, Etsy is looking for between $100M and $300M from this IPO. In the S-1, Etsy goes over all of the ways that they plan to use the proceeds, and the focus is clearly on growth.
They have set aside the bulk of the funds for corporate improvement and on-hand capital, but Etsy has also earmarked $300k for the Etsy.org non-profit. Currently, that website redirect back to the Etsy homepage, but eventually the non-profit will operate to educate the women and minority entrepreneurs which make up the bulk of Etsy sellers.
Sellers Are Not Convinced
In their S-1, Etsy has outlined a few concerns about this business model. The company says that they need to be selective about their sellers, out of concern that fraud and abuse will reflect poorly on their brand.
For their part, sellers that operate on the website are worried that an IPO means increasing fees in order to boost profits and keep shareholders happy. There have already been rumblings about moving to a different platform if the transition to a publicly-held company isn't a smooth one.
Etsy, for better or worse, relies on sellers for the bulk of their revenue. Keeping them happy while Etsy attracts a larger audience is going to be key in the coming quarters.
Etsy Is Also An Advertising Company
According to the S1 financials, Etsy is as much an advertising company as it is an online marketplace. The business brings in over $100M of revenue from sales commissions, and another $75M from paid links and ads. They have a robust system in place that lets sellers advertise their shops, which allows Etsy to broaden its revenue stream despite remaining an exceptionally niche business.
Is It Worth Buying In?
With the large share volume being offered and the shaky financial footing that the company is on presently, it's hard to recommend Etsy as a likely buy and hold. Of course, that all depends on what price you can enter the market at. In the beginning successful IPOs nearly always spike, but what happens to them after the first month is a much trickier question.
IPO investors are known as risk takers for a reason, but unless Etsy can get its operating losses under control this offering might be too much of a risk for anything but short-term trades.
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