Is Etsy Worth Its IPO Price?

Etsy made the headlines this week when it set its IPO price range at $14-$16 a share, valuing the company at $1.2 billion. The New York Times points out that, at that price, they would trade at roughly 52 times its adjusted earnings.

You might not be shocked to learn that Etsy hasn’t turned a profit yet either, citing its high development costs. But Etsy does have a knack for generating revenue — it brought in $200 million in 2014 by charging merchants to both list their goods and sell them.

As The Times’ article notes, that estimated price range points toward how “ambitious” Etsy has become from its early days of selling “unique” (aka odd) one of a kind handmade crafts, and predicts that the “stock sale would be among the better known offering so far this year.”

That’s a big jump from its humble beginnings in Dumbo, Brooklyn, where the company was started in 2005 as a way to sell wood-carved computers – seriously. What makes Etsy unique is the ability for consumers to “shop from people directly from around the world.” The “directly” part is what makes Etsy unusual.

When the consumer shops at Etsy, they are actually shopping directly from the merchant’s site and able to connect directly with sellers, message them directly on the site and pay them directly through whatever payment method is available on the seller’s site. It also allows buyers to remain in the online shop during the checkout process, helping eliminate buyer friction when it comes time to pay.

While Etsy may not have the massive customer base of Amazon, or quite as much of an established reputation, consumers using Etsy’s marketplace tend to seek out something more specific, or more unique, as the company prides itself on the handmade aspects (although there’s been accusations that mass-produced merchants have used Etsy to pass off goods as homemade). As of the end of 2014, Etsy had 54 million active members on its site globally, growing from 1 million members when it started in 2008. As of 2014, it has 1.4 million active sellers and 19.8 million active buyers.

According to Etsy’s blog, the company receives 50 percent of its visits from mobile devices, which is driving more of its volume. While 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 — Etsy is hoping to convert more buyers by accepting Apple Pay in-app. Etsy managed to help promote Apple Pay on its website and give it a little product plug to help its merchants add it as an option on their page.

Etsy also recently added Google Wallet to its mobile app as an option at checkout.

Besides its traditional core business, Etsy also made moves to scale its marketplace beyond its ma’ and pa’ artists and crafters for merchandise; the company got into the wholesale purchase orders in 2014. This move was expected to bring in more inventory to drive up sales. That may be particularly attractive to shareholders once Etsy goes public. But it could also be the kiss of death to some of its smaller merchants who don’t want their once unique marketplace to become known as a massive wholesaler.

But the company has reached the point where they’ve got to turn a profit and grow. Luckily for Etsy, it already has some big name backers as investors include: venture-capital firms Accel Partners, Union Square Ventures, Index Ventures and Tiger Global Management LLC, which collectively own 62 percent of the company. Accel, which invested in Etsy for the first time in 2008, is the largest shareholder, with a 27 percent stake. Soon, however, the public can get a piece in Etsy’s homemade marketplace pie.

And while those early merchants who joined Etsy might be worried about its future once it goes public, they likely won’t be arguing with the extra business growing the marketplace could bring them. As the company moves toward its IPO, grows its business model and gains new investors, soon everyone will see if Etsy is indeed going to be the next eBay or Amazon, or if Etsy is just going to become a bigger, more developed, publicly traded version of itself.