Should I Buy Etsy Stock? (Nasdaq: ETSY)

Etsy Inc. (Nasdaq: ETSY) stock hits the market tomorrow, April 16. The peer-to-peer e-commerce company is one of the most talked about IPOs of 2015 so far.

With the possibility of becoming the largest New York tech IPO since 1999 by raising $250 million, people are wondering, "Should I buy Etsy stock?"

Here's a closer look at the Etsy IPO and ETSY stock...

Everything You Need to Know About the Etsy IPO

Etsy IPO at a Glance

IPO Date: April 16

Ticker: (Nasdaq: ETSY)

Share Price Range: $14 to $16

Number of Shares Sold: 16.7 million

IPO Total: $250 million

Number of Users: 54 million

Etsy Inc. (Nasdaq: ETSY) set a price range of $14 to $16 and will announce a final IPO price this evening. The company will offer 16.7 million shares and hopes to raise $250 million.

Following the IPO, Etsy will command a valuation of roughly $1.8 billion. That makes it the third most valuable tech IPO so far this year, behind Inovalon Holdings Inc. (Nasdaq: INOV) at $3.4 billion and GoDaddy Inc. (NYSE: GDDY) at $3 billion.

Founded in Brooklyn in 2005, Etsy's founders originally used it to sell their handmade wooden crafts online. The company now allows users to buy and sell a wide range of items, including art, photography, jewelry, food, and toys.

Bloomberg reported that the Etsy IPO will put "New York tech back on the map." The deal is turning attention away from Silicon Valley toward the New York startup scene. The last tech company from New York to raise more than $250 million was Barnesandnoble.com during the dot-com bubble. The only other New York IPO to come close was OnDeck Capital Inc. (NYSE: ONDK) last December, which raised $200 million.

should I buy etsy stockEtsy has a B Corporation certification - an award companies receive when they meet certain social, environmental, transparency, and accountability standards. The company fulfills its certification by offering employee privileges like bikes for commuting to work and food waste composting. Etsy will be the largest B Corp. company to ever go public.

Etsy's sales have gained momentum in the last few years. The company posted $195.6 million last year, a 56.4% increase from 2013.

Etsy merchants sold $895.1 million worth of items in 2012. That number soared 116% since then, hitting $1.93 billion in 2014.

But those strong numbers shouldn't send you running toward ETSY stock.

There are two huge risks that have us avoiding it after the ETSY IPO...

Should I Buy Etsy Stock After the IPO?

The biggest risk with buying Etsy stock is the company's lack of profitability.

In fact, Etsy blatantly admitted in its IPO filing that it may never make money in the future.

"We have a history of operating losses and may not achieve or maintain profitability in the future," Etsy said in its IPO filing.

Etsy's revenue has increased from $74.6 million in 2012 to $195.6 million in 2014. That's a jump of 162% in two years. The company has seen an annual revenue growth rate of 72% over the last nine years. Most of it comes from advertising and fees users pay to buy and sell items.

But its operating expenses have skyrocketed as well and are projected to keep growing. They increased 81.4% in 2013 and 67.6% in 2014.

"We expect that our operating expenses will increase substantially as we hire additional employees, increase our marketing efforts, expand our operations, and continue to invest in the development of our platform," the filing states. "These efforts may be more costly than we expect and our revenue may not increase sufficiently to offset these additional expenses."

The second red flag is Etsy's lack of concern over its lack of profitability - which stems from its B Corp. status.

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Etsy's B Corp. certification means the company must uphold social and environmental standards. B Lab, the nonprofit that awards the certifications, has the power to revoke it if Etsy focused more on financial performance than social consciousness.

IPO investing is difficult for retail investors in general. Wall Street typically reserves the hottest stocks for institutional investors willing to shell out a lot of money on the first day.

Additionally, the IPOs that retail investors want are usually accompanied by pre-deal hype. That hype can overshadow facts and make these new stocks volatile.

"Too many investors hear of a 'hot IPO' and try to get in on the action - without doing any homework at all," explained Money Morning Defense & Tech Specialist Michael A. Robinson. "That's a recipe for a hefty loss."

The Bottom Line: As Etsy prepares to hit the market tomorrow, investors are asking "Should I buy ETSY stock?" Brand new stocks are generally bad news because they tend to sell off by the time retail investors get their hands on it. We advise against buying ETSY stock since the company is not profitable and has no initiative to make a profit in the future.

More on 2015 IPOs: There were more IPOs last year than any year since the height of the dot-com era in 2000. The tech sector is poised to dominate again as massive startups like Uber and Snapchat are rumored to go public. Here are 15 tech IPOs that will explode onto the market this year...

Follow me on Twitter: @AlexMcGuire92

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