Etsy Inc. (NASDAQ:ETSY) the seller of handcrafts and marketplace of small businessmen released its IPO earlier this year to much fanfare. Since then the share price has tumbled from a high of $30 per share to about $9 per share today. The massive underperformance by the share has earned Etsy the moniker of worst IPO of the year. Things do not seem very nice for the e-retailer due to a combination of facts and events.
Firstly the third quarter report of Etsy was disappointing to say the least. Revenue growth fell short of expectation though there was still a 38 % growth to $65.7 million from $47.6 million. The Gross Merchandise Sale for the third quarter increased by 21.7% which was slower than 24.6% in Q2 and 28.2% in Q1. The deceleration in itself would not have been that worrying but the fact that the company increased its marketing spending by 88% year over year and still did not manage to sustain growth is worrying. The company has also admitted that it expects to its gross margins to slip in Q4.
However the biggest threat to Etsy does not come from its tepid growth or useless marketing spending, the threat comes from the entry of Amazon.com, Inc. (NASDAQ:AMZN) into Etsy’s territory with Amazon handmade. Amazon is a massive company with over 100 times the cash held by Etsy and in the event of a price war it is pretty certain that Etsy would come out the loser. There are also some legal problems Etsy is facing over counterfeit products that could exacerbate the already tenuous situation the company finds itself in
According to Chad Dickerson, the CEO of Etsy Inc. (NASDAQ:ETSY), the entry of Amazon into handicraft retail is not that big a problem and his statements seem to convey a message of optimism. However, the assurances have done little to soothe the confidence of investors who have been rattled by the plunging of the stock that was thought to be a sure shot blockbuster of the year.