Etsy IPO: Impressive Growth At Attractive Valuation

  • Online crafts and art marketplace, Etsy, filed for IPO at the beginning of March.
  • Etsy offers impressive top-line and EBITDA growth coupled with attractive pre-IPO valuation.
  • In case Etsy IPO P/S ratio is in the range between eBay and Alibaba, it may present an attractive buy opportunity.
Etsy IPO analysis

Etsy, the online niche marketplace, is expected to be one of the hottest IPOs in 2015. At the beginning of March, the company ended all rumors about its plans to go public and filed for IPO under the ticker ETSY. The company has not yet disclosed a date or a share price for its upcoming IPO, but investors can use the data Etsy released in its S-1 to consider whether they should invest in this IPO.

As mentioned in an earlier article, Etsy has registered impressive growth in total gross merchandise sold (GMS) that drives an impressive top-line growth. That information was publicly available before through Etsy’s blog. However, the company’s S-1 also unveiled a significant 12% quarterly EBITDA growth, 65% gross margin and $15M net GAAP loss in 2014. This article will shed more light on Etsy’s revenues, innovation, and valuation.

Etsy Revenues

Etsy operates through three segments: marketplace, seller services, and other. The largest revenue stream, generating 51% of the company’s revenues, is the marketplace segment, which includes income from listings ($0.2 per item) and transaction fees (3.5% per transaction). The second largest revenue stream is seller services, which accounts for 47% of the company’s revenues and includes promoted listings (charged per click), wholesale enrollment fees ($100), and payment processing fees (3% + $0.25 per transaction). Revenues from third-party payment processors are included in the smallest revenue stream and account for only 1% of the total revenue. As shown in Chart 1 below, seller services is the fastest growing segment with an 18% quarterly growth rate while the core marketplace revenue grows at a quarterly pace of 9%.

Etsy_Chart 5_031515


The rapid growth in revenues from seller services is related to the innovative initiatives that Etsy has implemented in the recent years, such as Promoted Listings, which allow sellers to promote their shop or specific items on Etsy’s website, and Etsy Direct Checkout, which allows sellers to process payments to their shops directly through Etsy instead of PayPal. Etsy is currently working on two additional initiatives to increase its seller services revenue. The first one is a point-of-sale (POS) system that merchants can use to process payments of offline, in-person transactions for a competitive fee of 2.75% per card swipe.

Also see:  Square IPO analysis to learn more about the payment processing market.

The second initiative is a wholesale platform that will allow sellers to increase their sales through Etsy based on a wholesale model. Joining the wholesale platform requires sellers to pay a one-time fee of $100 as well as the usual 3.5% transaction fee for every sale made through Etsy. The wholesale platform will increase the number of deals closed on Etsy’s platform and will drive additional income from transaction fees as well as other payment processing fees.

Etsy Competitive Landscape and IPO Valuation

Unlike many other e-commerce marketplaces, Etsy is focused only on crafts, arts, vintage goods, and supplies. Etsy’s focus (and one of its strengths) is its differentiation among many other equivalent sites. However, this might limit Etsy in the future as the company has to innovate constantly in order to increase revenues from its relatively small market. In the near future, as mentioned above, Etsy will put new initiatives in place to increase revenues in its seller services segment, in addition to its on-going effort to increase marketplace revenues. In the long run, Etsy will have to bring other unique initiatives to increase revenues, including initiatives outside of its core business as an online marketplace.

In the chart below, Etsy is compared to four other main e-commerce players: eBay (NASDAQ:EBAY), Amazon (NASDAQ:AMZN), Alibaba (NYSE:BABA) and (NASDAQ:JD). As shown in the chart, Etsy is the smallest company, with a market cap of only $1.7B according to a latest WSJ estimation, as well as decent gross profit and EBITDA margins that make Etsy IPO attractive to investors. As a share price has not yet been disclosed, in order to remain attractive, Etsy will have to offer a P/S ratio in the range between eBay and Alibaba that can leave some room for additional upside.

Etsy_Chart 6_031515

eBay and Alibaba both have a significant marketplace core business and a payment processing unit. Residing between the two can create high demand for Etsy IPO and may drive a significant first-day upside, followed by a long-term upside backed by Etsy’s sustainable growth and innovation.


Online crafts marketplace, Etsy, filed for IPO two weeks ago, further unveiling its business and financials. Etsy presents significant top-line and EBITDA growth (on top of the GMS growth discussed in the previous article) driven by innovation and continuous efforts to increase GMS.  The company has a unique offering compared to other e-commerce players, and it's well positioned among the main players in this market. As Etsy seems attractive from its S1 documents, Etsy IPO will be attractive to invest in only if the company’s IPO valuation falls within the range of eBay’s and Alibaba’s P/S ratios. Once Etsy prices its IPO and uncovers its IPO valuation, I will revisit my thesis.

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Comments on this article and ETSY stock

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Paul Sadler
Great analysis Lior. I'll be back to see further posts.
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Do share this awesome post