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The Collaborative Economy made headlines again on 16 April as online marketplace, Etsy (NASDAQ:ETSY), shares became available in its IPO on the Nasdaq. Etsy shares opened at 31.00 following an offering price set at 16.00. Etsy closed the day at 30.00, up 87.5% on a volume of nearly 20 million shares, giving the “artisanal eBay” a value in excess of $3.3 billion.
The name “Etsy” is an acronym for “easy to sell yourself.” Apparently the shares were as easy to sell as the products. More and more Collaborative Economy startups have grown up and are going public. Businesses that were promoted as being all about the common man are evolving into businesses that make billions of dollars off of the common man. To be sure, it is a symbiotic relationship.
With Etsy, for example, a crafts person’s merchandise goes immediately from being displayed in a 3,000 square-foot storefront to being displayed on millions of computer screens around the entire globe. Like eBay and Amazon, the online platform takes its cut from the sale of the products. That’s not a bad thing. It is, in my humble opinion, however, misleading. I love the concept of the expanded exposure for makers. What bothers me is that the people making the big bucks are the techies who operate the cyber platform. In many ways the arrangement appears to be a form of capitalistic feudalism.
At the very least, some makers will sell more, but very few, if any, will come close to what the middle man makes. I’ve used this illustration before: The people who got rich during the gold rushes where not the miners. They were the people who sold tools and supplies to the miners.
It will be interesting to see what happens to Etsy today, and in the ensuing days. I say that because Etsy has a BIG problem. A problem that prevents me from being interested in the company as an investor. It seems that the public (and some institutional investors) have become emotionally enamored with this new approach of “re-imagining commerce and connecting people.” So much so, in fact, that many have neglected to look at the numbers. So, for ADVFN readers, here are Etsy numbers that should be significant:
- 54 million members
- 1.4 million sellers
- 19.8 million active buyers
- $1.9 billion worth of product sold through Etsy in 2014
- 43% increase over previous year
- $195.6 million in revenue for Etsy in 2014
- 161% increase over previous two years
No wonder investors are excited! They have failed to read all the numbers. You know, like profit. Profit? That is not a word in Etsy’s vocabulary. The company was founded in 2005 and has lost money every year. At the point of its S-1 filing, the loss was $4.9 million on sales of $108.7 million.
I’m not saying that the company won’t be successful. I’m saying that, from an investment due diligence perspective, it has never been successful, unless one defines success as the ability to secure venture capital funding. Then, of course, there’s that “successful IPO” thing. I predict that the road ahead of Etsy is going to be bumpier that what is now behind it. Post-IPO Etsy has a whole new group of people to be accountable to, and some of those people are going to want to see some return on their investment.
Lou Gutheil (obviously) hold no interest or position in Etsy.
Image courtesy of Toa55 at FreeDigitalPhotos.net
