Can Etsy Make Money and Do Good at the Same Time?
Etsy doesn't think of itself as just another e-commerce company. It says its mission is to "reimagine commerce."
The 10-year-old Brooklyn-based company—which is expected to price its IPO after the bell Wednesday—is a marketplace for handmade and vintage products, giving 1.4 million sellers a platform and tools to connect with 19.8 million buyers.
And while the company's revenue is growing, it still shows large operating loses, and may test whether a company with a lofty mission can make money.
For sure, Etsy's reach is massive: It has 29 million items listed, with people buying and selling from nearly every country in the world, and $1.93 billion in gross merchandise sales last year.
How does it make money? The company charges 20 cents to list a single item for four months. If the item sells, Etsy takes a 3.5 percent cut. It also charges for prominent placement in search results, payment processing and shipping labels. Sellers either support themselves or supplement their income by hawking everything from a homemade Cinderella dress or felt fox, to a hand-knit tuxedo cat scarf.
In 2014, Etsy grew its revenue 56 percent to $196 million. But as the company invested more in marketing, its net loss widened dramatically—from $796,000 in 2013 to more than $15 million last year.
Those loses should concern potential investors, as the company notes that it "has a history of operating losses, and may not achieve or maintain profitability." The company's S-1 filing also says it expects operating expenses to increase as it hires "additional employees, increases marketing efforts, expand our operations and continue to invest in the development of our platform."
CEO Chad Dickerson said in his letter to shareholders that profitability isn't the only thing he's focused on. "I believe that Etsy can be a public company that holistically integrates the concerns of people and the planet, the present and the future, profitability and accountability."
Etsy's IPO will be the largest ever of a certified B-Corporation, a company that meets certain social and environmental standards, similar to the LEED certification for green buildings.
The company says it has a social mission of wanting to "change the way the global economy works." It offers employees second-hand bikes and maintenance, composts over 600 pounds of food waste monthly at local farms and uses reclaimed office furniture. It's also applying this philosophy to its IPO: it set aside 5 percent of shares to sell to vendors and other small investors. (Tweet This) The Morgan Stanley program is selling $100 to $2,500 of Etsy stock and is waiving typical fees. This is on top of the 10 percent of shares marketed to other small investors.
Etsy is one of many pre-IPO companies jumping on consumer demand for capitalism with a conscience. Warby Parker and Honest Company are also certified B-Corps. Etsy also sits at the center of a couple other hot start-up trends: It's a key example of the freelance economy, like Uber, Lyft, and Dog Vacay. And it's tapping into the surge of 3-D printers and high tech design tools that are enabling small scale entrepreneurs to design and manufacture at a much more sophisticated level than ever before.