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Etsy Inc. (Nasdaq: ETSY) stock hits the market today, April 16. The peer-to-peer e-commerce company is one of the most talked about IPOs of 2015 so far.
Etsy became the largest New York tech IPO since 1999 by raising $250 million. Now, people are wondering, "Should I buy Etsy stock?"
Here's a closer look at the Etsy IPO and ETSY stock…
Is Etsy Stock One to Avoid?
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 wrote in its IPO filing.
It is bringing in money. 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."
Etsy Stock: How Does Etsy Make Money?
Etsy has openly admitted that the company isn’t profitable. While some believe its strong sales growth make Etsy stock a buy, others believe its commitment to have an impact on society and environment make in financially unstable.
So how does Etsy make money at all?
Here's how the e-commerce firm stays afloat…
How Does Etsy Make Money? Advertising and Transaction Fees
The strongest aspect of Etsy Inc.'s (Nasdaq: ETSY) financial performance is its revenue growth. Over the last nine years, the company has seen an annual revenue growth rate of 72%. The "Etsy Weather Report" shows us where exactly that money came from...
Learn more here about the “Etsy Weather Report” – which provides the company’s monthly site-wide statistics.
Etsy Stock Priced at $16 for Initial Offer
The Etsy IPO price of $16 a share is cheaper than the price of many other recent tech IPOs.
GoDaddy's IPO last week had a $17 to $19 projected price range and ended up pricing higher at $20. Inovalon's Feb. 11 debut soared above its $21 to $24 range and opened at $27. Alibaba Group Holding Ltd. (NYSE: BABA), which has a similar marketplace model as Etsy, priced above its $60 to $66 range at $68 and became the largest U.S. IPO ever.
The reason behind Etsy's low price range is simple – the company isn't profitable. In fact, the company admitted in its IPO filing that it may never be.
Who is Investing in Etsy Stock?
Investing in Etsy stock is not for everyone – mainly because of the huge consideration that the company is not profitable.
Check out what the New York-based company wrote in its IPO filing: "We have a history of operating losses and may not achieve or maintain profitability in the future."
But despite this warning, there are people investing in Etsy stock. Some believe its strong sales growth make Etsy stock a buy.
Others like it for its company culture – something that even Etsy's IPO process has reflected…
You see, Etsy's culture is ingrained in its B Corporation certification. B Lab, the nonprofit that distributes the certifications, awards them to companies that meet certain social, environmental, transparency, and accountability standards. As part of its certification, Etsy offers employees bikes for their work commute and composts food waste.
These wholesome values are central to Etsy's pitch as the company pursued investors on its IPO roadshow. Anyone investing in Etsy stock is likely to enjoy this company philosophy. And Etsy's management considers the well-being of the shareholders and community paramount to its success.
The company asks investors to embrace its mission to "do good" and do well – a mantra Wall Street isn't accustomed to.
"It's like a beautiful test in a way to see if it's possible to have a mission beyond money," said Rett Wallace, CEO of Triton Research, to Bloomberg. "You see these situations all the time where even management is doing their best to take every penny off the table – regardless of what it does to the widows and orphans – you often see fund managers saying, 'You're not doing enough to make money.'"