May 14, 2015
By David Katz, CPA
Etsy, a company that enables the craft and entrepreneur community to sell handmade and vintage products online, took a unique path to their IPO. Unlike Facebook's IPO, which was virtually inaccessible to individual investors, Etsy decided that their IPO should retain their sense of “community.” They made provisions for their customers to have access to their initial stock offering and limited the number of investment bank houses that could purchase stock before their public debut.
Etsy’s IPO was priced at $16 a share and the pre-IPO amount of stock was capped for retail investors at $2,500. The possible goal was to end up with more individual shareholders in the IPO, which would help stabilize their stock price. In theory, individual investors who are Etsy buyers and sellers may hold onto the investment rather than sell it for a quick profit. It was also rumored that when Etsy met with big institutional investors before the IPO, they focused on investors that were interested in owning the stock as a medium- or long-term investment.
Why would Etsy possibly make their IPO accessible to more individuals and court long-term institutional investors? Etsy reported on its 2014 form S-1 a $4.9 million net loss on $108.7 million in revenue. In fact, they posted net losses for the past three years. With the injection of cashflow from the IPO, Etsy might be able to accomplish goals which would increase their profitability. A strategy like this could take some time to bear fruit and a dedicated individual who believes in the company, or a long-term institutional investor, would give Etsy the time needed to follow through with a plan.
Regardless of the logic behind the decision, one thing is clear about this IPO. As a viable alternative to “big box“ retailers, Etsy has succeded in becoming a “big“ company while also maintaining their image of “accessibility“ to the average small-time vendor and consumer.