Is Etsy Undervaluing Its Most Important Listing—Itself?

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Etsy

Etsy is the online outlet for all manner of creative sellers, and new CEO Josh Silverman is going to have to get very creative himself if he’s going to rescue the artisans’ paradise from becoming a casualty of the ever-evolving digital-retailing universe.

Its shares climbed 19% this week following news of two new private equity investors. Their stakes were purchased “on the belief that they were undervalued,” the firms noted in an SEC filing, adding that they were keen “to engage in discussions regarding strategic alternatives” — which could include a possible sale or refocusing of its business.

Etsy IPO NASDAQ

Etsy went public in a $3.5 billion IPO two years ago as “the anti-eBay,” a place where artists and craftspeople had been selling homemade goods and a company that, as a B corporation, emphasized higher social goals than just making a profit.

Indeed, it’s still driven by a corporate citizenship mission to be socially responsible. For example, as Barron’s notes, Etsy “serves weekly ‘Eatsy’ lunches for employees at its Brooklyn headquarters with locally-sourced food served in compostable paper bowls.”

After the IPO, the site’s shares surged by 88 percent. But less than a year later, Wired said, those shares lost more than half of their value and never climbed back. Challenges included Amazon’s “Handmade” marketplace and higher costs related Etsy Studio, its new craft supplies marketplace, new global HQ in Brooklyn, NY, and a global brand marketing campaign last September.

After revealing a loss of nearly a half-million dollars for the first quarter of this year, the company cut 8 percent of its workforce and CEO Chad Dickerson left the company on May 2nd.

Now Silverman, a veteran of other internet businesses including Evite, Skype and eBay, is mulling its future and engaged in a “listening and learning” tour of the company. Stalled for growth and revenue, he may try to scale it beyond its artisanal niche.

Its hedge fund backers—TPG Group Holdings, with a 4.3 percent stake, and Dragoneer Investment Group, with 3.7 percent ownership—may not be so patient and may press Silverman to move quickly. Both firms have asked Etsy to “engage in discussions regarding strategic alternatives.”

The sellers and customers who helped build the Etsy and community are worried about their favorite e-commerce platform. At least one of the hedge funds acknowledged that possibility.

“Etsy is a unique company whose success derive from the creativity and commitment of its community,” TPG wrote in its SEC filing. “TPG understands the value of that community and the importance of preserving its role.”

Silverman acknowledged that in a statement that read in part:

“Since my appointment as CEO two weeks ago, I have gained an even greater appreciation for all that Etsy has accomplished over the past twelve years and its potential for growth and value creation. One of the most challenging things to do in a marketplace business is create a differentiated value proposition for buyers that provides a unique opportunity for sellers. Etsy has done just that, creating a strong technology platform and cultivating powerful loyalty driven by a robust seller community and 45 million listings.”

“We are now reviewing our strategic and operational plans to ensure Etsy is focused on the most value-enhancing near- and long-term opportunities. We will prudently invest in areas that will deliver the greatest returns. At the same time, we see significant opportunities to scale our marketplace business model and drive efficiencies. In everything we do, we will strive for operational excellence and focused execution. I am encouraged by what I have seen and heard from our employees, sellers, buyers, and shareholders. I’m excited to build on Etsy’s solid foundation while increasing our focus on areas where we can do better. We look forward to providing a­dditional details when our review is completed.”

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