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Etsy And Why It Will Fall

Summary

Because Etsy took venture money, it has been forced to take measures that will bring about its downfall.

Etsy today looks a lot more like Ebay and Amazon. Since taking the reins as CEO in May of this year, Josh Silverman has scrapped all initiatives except those that produce immediate sales growth. This growth has pushed the stock up 50%, and brought on a whole new legion of buyers and sellers on the craft marketplace. With a dramatic rise in usage, more players are looking to Etsy as a place to reach potential customers and cash in on the ‘craft goods’ marketplace. Many of these new entrant firms however, aren’t the firms that Etsy is looking for.

            Etsy started when founder Robert Kalin needed a place to sell his handmade furniture. He used traditional channels, as well as Ebay and Amazon but none of them were quite right. He sought a marketplace that connected the producers and of handcrafted goods, with buyers looking for unique products. While Ebay and Amazon are centers for mass produced goods, Etsy is reserved for products that are home-grown, handcrafted, and small business- made.  After taking 85 mn in venture funding, Etsy ultimately went public with the 1.4 mn active sellers, 20 mn active buyers, and gross sales crossing $2 bn though it hadn’t yielded a profit.

            Why has Venture doomed Etsy? For Venture to work, companies they invest in need to exit. This is either a strategic acquisition by a larger firm, or going public. Etsy went public. In doing so its quarterly results have been poured over by analysts all over the street. With the stock down 25% from its IPO price in March, Etsy went straight to growth mode. Aggressive marketing, and new tools for sellers led to increased page views and browsing time. Ultimately, the dollar share available for capture on the site has risen dramatically over a short period of time. What does this mean for the site?

            More sellers, bigger sellers, mass manufactured goods, and the very elements Etsy was created to isolate crafter buyers/sellers from. Independent craft makers are finding it more difficult to sell as larger sellers undercut them on price. Buyers, those who have built the company through their purchases, are finding it more difficult to find artisanal goods. All the while, Etsy corporate is fending off activist investors from all sides.

            The bigger Etsy gets, the furthers away strays from the elements that made it great and produced financial results. As Wall Street pressure produces short term gains, the company falters. Etsy’s accelerated growth is merely a harbinger of its impending decline.

            Business models like Etsy’s cannot take venture money and succeed. This stock should be shorted.