A little over a year ago, Etsy IPOed, mostly to a round of applause. The firm entered the public markets with a $1.2 billion valuation and shares trading at $14-16 a share. While perhaps once written off as the Internet's home for insane crafters and people who decorate their houses with fan art, Etsy has clearly grown up, gone mainstream and was ready to take on the world.
The honeymoon, however, was short lived.
Within a day of the IPO home run, questions began to circulate as to whether or not investors had perhaps let their enthusiasm run away with them a little bit. At its post-IPO valuation and share price, Etsy was roughly 52 times its adjusted earnings. A pretty impressive feat, considering at the time of its IPO Etsy wasn't actually profitable yet.
But hopes remained high for much of Etsy's early public run. The firm at the time of its IPO may not have had profits, but it did have 54 million active members on its site globally (up from 1 million members when it started in 2008). Etsy was also home to 1.4 million active sellers and 19.8 million active buyers and Etsy's customer base skewed both younger and more mobile engaged than the average eCommerce marketplace. More than 50 percent of its traffic has been mobile for the last three years, and one of the site's more touted value propositions has been the speed and ease of its checkout. Etsy typically relies on what it calls “direct checkout” that lets the customer make the transactions in just a few steps — and in 10 different currency options.
The thought was that while Etsy didn't have Amazon's scale, reach or ubiquitous brand recognition, it did have a very distinct client base on the hunt for more specific and more unique goods.
And then Amazon Handmade happened — almost out of nowhere.
Amazon Handmade offered up a new shopping destination for the craft-enthused, leading off with a lineup of about 5,000 sellers hawking their hand-hewn wares (about 80,000 items in total) in the U.S. and around the world. Amazon also went the further step of sending out individualized invites to Etsy’s artisans inviting them to apply to sell on Handmade.
In fairness, no one has ever accused Amazon of being subtle.
“You can think of it as a factory-free zone, a mass produced-free zone,” said Peter Faricy, the Amazon vice president who is overseeing Handmade, at the time of release.
“For the first time on Amazon, we’re going to have a picture of the artist, a little icon of what state they’re from, what country they’re from,” he said in an interview. “We’re going to launch with an experience that’s very different. Customers are going to see the difference.”
The assault was particularly well-timed. At right around the time that Amazon was pulling off a surprise launch, Etsy was taking flack for reportedly selling out their artisanal vision and allowing some manufactured (as opposed to handmade) goods to go up for sale on their marketplace. Amazon Handmade also launched with logistical backing for sellers.
“Amazon has all the capabilities they need to make their program a big success. They have all the marketing power in the world, and they’re already so global,” said Dani Marie, chief executive of Handmade Seller magazine and author of “The Handmade Entrepreneur,” a monthly guide to selling crafts online that is independent of Amazon.
“They’re going to send sellers so much more traffic,” she said.
And, the market thought, take lots of traffic away from Etsy. Etsy's share price had already been in some decline before the big reveal. After peaking a little north of $20, stock price had slid back down to IPO levels in the $12-$14 range. After October 8? Etsy sales have been consistently sliding, bottoming out with most of the tech market in February of this year at $6.36.
Things have improved some since those dark days of early February. Share price has climbed to $8.50, comfortably in the middle of the $8-$9 share price the firm has been locked in since early March of this year.
But while others have counted Etsy out, Etsy in some ways has doubled down and decided that going big is their only option other than going home.
This month, despite the grim warnings of doom, Etsy reported its first quarterly profit since going public. It was a small profit, only 1 cent per share, but analysts expected a 2 cent loss.
Etsy's results demonstrated revenue growth re-accelerating, and margins are improving at all levels. The company's gross margins — the amount made after the cost of goods sold — expanded 65.9 percent. All in, Etsy reported revenue of $81.85 million, up roughly 40 percent year-over-year, crushing analyst estimates that called for a 28-percent jump in revenue to $75.15 million. Also on the rise was mobile activity. Visits now come 63 percent from mobile, as opposed to last year's 59 percent.
"After spending a year in the wilderness, lately Etsy has gotten its act together in an amazing way," Cramer said.
Etsy's CEO was similarly enthused.
"Our financial results in the first quarter were driven by our strong execution. We supported 1.6 million active sellers and 25.0 million active buyers, who together generated nearly $630 million in GMS. The second quarter is also off to an exciting start with the launch of our newest high-impact seller service, Pattern by Etsy, and a host of other products and seller tools that we believe will build long-term value for our community. We are as committed as ever to our vision of reimagining commerce and are looking forward to a productive year," noted CEO Chad Dickerson.
The markets, formerly a killing field for Etsy, where over 60 percent of its share price has been slaughtered in the last year, were now in love, and stock price bounced accordingly.
And, apparently looking to strike while the iron is hot, Etsy is pursuing an aggressive push for greater international action — riding the recent surge in cross-border commerce — and to that end the firm has hired Linda Kozlowski as chief operating officer and vice president of worldwide operations. It's also promoted Heather Jassy to SVP for values-aligned business.
“My mandate is to make certain that our mission and values are deeply ingrained into every aspect of Etsy’s culture, products, services, business and leadership,” Jassy wrote in a blog post.
So, problem solved, Etsy has beaten back Amazon and is now on the right path, right?
Well perhaps that is a bit overly enthused. The reality is that after the 12 percent rocket ride post earnings, Etsy's share price has been pretty flat and still remains far below its IPO value.
And all the analysts, good performance aside, are not wholly convinced.
"Despite the beat, it left FY16 sales growth guidance unchanged, leading us to believe it’s either being conservative or growth will slow as the year progresses," Roth Capital Partners wrote. "We still remain concerned its business is deriving the bulk of growth from seller services while marketplace growth continues to decelerate."
So is Etsy coming back, or just holding on?
Well given the roller coaster in share price — and mostly a falling one — it is hard to say that Etsy is firmly on the road to repair. Still, its continued growth and aggressive pursuit at least indicate that writing all those obituaries the day Amazon Handmade announced its existence was probably just a bit premature.