Investors were dropping Etsy stock like it was hot yesterday (May 11) afternoon following analysts’ warnings that as many as 2 million goods for sale on the arts and crafts marketplace are either fakes or violating trademarking laws. If that figure is correct, it would represent about 5 percent of all goods sold on the site, CNN Money reported.
Etsy stock took an 8 percent hit in price on the news – the latest in a string of difficulties the firm has faced since its very public IPO a month or so ago. After closing at $30 on its first day of trading in mid-April, it is now down to $20. Etsy’s first problem was facing concerns that it is not ready to compete with the mega retailers of the Web like Amazon or eBay because of its narrow focus on handmade and niche products.
Now, according to a new report from research firm Wedbush, Etsy has another challenge to its ability to grow the business – the report highlights how Etsy has left itself open to copyright infringement suits from Disney, NFL and Louis Vuitton brands, among others.
The researchers noted that Etsy’s problems resemble some of the issues Chinese eCommerce’s Alibaba has faced in recent years over the counterfeit question.
“Considering the broad backlash on Alibaba regarding inauthentic merchandise, we expected added scrutiny, given the social responsibility ethos at the core of Etsy’s brand,” the report noted.
Etsy had no immediate response to the report or stock sell off.
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Before Monday’s stock price drop, Etsy was trading at an extremely highly valuation level with growth that outpaced both Twitter and Alibaba.
