Can Etsy Maintain Artistic Roots with IPO?

Etsy, the online marketplace that provides artists, crafters, and classic collectors a place to sell their products, filed for an initial public offering earlier this month. The business intends to raise at least $100 million.

Launched in 2005 in an apartment in Brooklyn, Etsy currently has 685 workers, 1.4 million active vendors, 19.8 million active buyers, and achieved $1.9 billion in gross sales in 2014. Thirty-one percentage of the $195.6 million in 2014 revenue came from outside america. While total earnings represent a 56.4 percent growth over 2013, Etsy had a 2014 net loss of $15.2 million compared to a net loss of $0.8 million in 2013.

Spending on advertising more than doubled between 2013 and 2014, contributing to the higher loss. The majority of the growth was attributable to more spending on search engine advertising via Google Product Listing Ads. The business has been expanding its advertising efforts and plans to use a good part of the proceeds of the IPO on international advertising.

Etsy Marketplace

How Can Etsy Make Money?

Each item listed on Etsy costs sellers 20 cents once the listing is printed. An inventory lasts for four weeks or until the merchandise is sold. Once a sale happens, Etsy collects a 3.5 percent transaction fee on the product’s sales price. Additional revenue — 42 percent — comes from vendor services such as Promoted Listings, payment processing through Immediate Checkout, and discounted shipping labels.

The business plans to add new vendor services with the proceeds of the IPO. Later on, seller services will probably comprise a greater proportion of revenue as gross product sales flatten.

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Demographics

According to some 2014 Etsy survey, 86 percent of its American vendors are female and 95 percent of all vendors run from home. Sellers range from amateurs to professional merchants, but 76 percent believe their Etsy store to be a small business.

Originally Etsy allowed just individually handmade goods to be marketed. In late 2013, Etsy changed its policies to permit sellers to associate with third party small-batch makers to produce their products. This alienated some Etsy sellers and clients who wanted the company to stay with its rigorously handmade craft seller evaporating.

In the prospectus, Etsy CEO Chad Dickerson opinions that failing to keep the image of an”authentic, trusted marketplace” that appreciates”unique offerings” and”handmade products” could be a risk to its business.

Nevertheless, Etsy is integrating advances in manufacturing technology, such as 3D printing, that let artisans and small-batch manufacturers produce small amounts of products at a fraction of the cost of traditional manufacturing or handmade production.

Dickerson says,”Together with our vision of responsible manufacturing, we’re promoting a new, people-centered version where artisans can preserve the spirit of craftsmanship and grow responsibly by cooperating with individuals at small-batch manufacturers to produce their goods.”

Etsy fosters a feeling of community by encouraging people to join together in virtual groups which represent either a geographical area or a craft like pottery.

Etsy tries to locate a balance in promoting local content, and local payment and shipping options, while offering a worldwide marketplace.

In 2014 Etsy, launched a wholesale branch to provide sellers a new sales channel. Etsy merchants can sell to local stores and national chains like Nordstrom and Whole Foods Market that want to incorporate distinctive goods for their shop merchandise. The business has been successful so far in providing new sales opportunities for its vendors. Etsy collects the exact same 3.5 percent transaction fee for wholesale purchase orders.

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A Different Definition of Success

When Etsy goes public, it’ll be unique as it will join just one other U.S. based certified”B business” that is publicly traded on a stock market. A B corporation has a double bottom line, adhering to unconventional company guidelines which include acting in a way that produces social good.

In a nutshell, maximizing profits for investors is only one objective. That fact might make some prospective investors think twice about getting shareholders. In its filing, Etsy does warn that it’s a history of operating losses and the firm”may not achieve or maintain profitability in the long run.”

Competition

Etsy competes with Ebay, Amazon, and Alibaba online. On the retail side, Etsy competes with little vintage and consignment stores. The organization believes that its specific products and artisan standing will allow it to compete against mass merchandisers.

In its IPO filing the company says,”Our expanding community has made it very clear that they need thoughtful alternatives to mass commerce and impartial retail and products that better reflect their personal values and style.”

However Etsy admits that”…competitors provide low-cost or free shipping, quick shipping times, favorable return policies, and other characteristics which might be difficult or impossible for Etsy vendors to match.”

Etsy has enjoyed strong growth and understands that it has to improve its marketing efforts and expand sales outside the U.S. to keep on growing. With its losses rising, the organization requires an infusion of funds to fund new and advertising technology. It’ll be interesting to see if as a public company Etsy can balance maintaining its handmade crafts roots while fulfilling the wishes of shareholders.

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