The Etsy stock price soared when it hit the market following the Etsy IPO in April.
The Etsy Inc. (Nasdaq: ETSY) stock price was $31.86 a share when the online marketplace started trading on April 16. That was a massive 99% pop from its $16 IPO price. The deal raised $732 million and became one of the largest tech IPOs of the year.
Although the Etsy IPO was met with enthusiasm, the company's valuation overshadowed its lack of profitability. The company even admitted in its IPO filing that it "may not achieve or maintain profitability in the future."
Since then, the Etsy stock price has fallen dramatically. It's down 55% in less than four months and 35% just this week alone. It has become the worst-performing IPO of 2015.
And two horrible earnings reports this year are the biggest reasons why...
Etsy Inc. (Nasdaq: ETSY) has reported nothing but losses during its brief time as a public company.
In Q1, Etsy posted revenue of $59 million, up 44.4% from $40.5 million in Q1 2014. However, that number was negated by the company's loss of $0.84 per share. Total operating expenses skyrocketed 73% to $42.7 million over the same period.
The firm's Q2 financials were just as bad. On Tuesday, it reported a second-quarter loss of $6.4 million, or $0.07 per share. Total operating expenses were $43.2 million in the second quarter, up 49.3% year over year. The costs came from marketing, increased hiring, and product development expenses.
The Etsy stock price responded horribly to the report. Shares opened 22.2% lower on Wednesday and fell 7.6% by the end of the day. The stock is down 0.8% as of 2:30 p.m. today.
So now that it has fallen so low, is ETSY stock a buy?
The biggest risk with buying Etsy stock is the company's lack of profitability.
The company has seen annual revenue growth of 72% over the last nine years. But its operating expenses are projected to keep growing. They increased 81.4% in 2013 and 67.6% in 2014. Etsy's expenses of $43.2 million in the second quarter alone show how the company isn't cutting back costs.
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The second red flag is Etsy's lack of concern over its lack of profitability - which stems from its B Corp. status.
The B Corp. certifications are awarded by B Lab, a non-profit that, according to its website, "uses the power of business to solve social and environmental problems." They're given to companies that meet various social, environmental, transparency, and accountability standards. Some B Corp. initiatives provide employees bikes for their commute and composting for food waste.
But these values threaten Etsy's ability to be profitable. Company management prioritizes shareholder and community well-being over Etsy's success.
Etsy wants investors to embrace its mission to be both socially conscious and financially successful.
"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.'"
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