ETSY stock sorely needed that, after shares had plummeted by more than 50% since their April IPO. But investors shouldn’t be fooled into thinking that this lift will last; ETSY stock has already started to roll back about 10% in early trading today and is sure to plumb new lows shortly.
That’s because Etsy stinks as a business, and Google will not be buying this wretched company anytime soon.
I wrote about the problems with ESTY stock a few months ago, noting that the e-commerce site has never made an annual profit, according to its official S-1 filing, and expenses were growing faster than revenue growth. Anyone who passed middle school math should know this means profitability will remain elusive, even if the company does manage to keep growing.
Google name-dropped Etsy on Friday in regards to its recent focus on “deep linking” and improved search algorithms, but that should not be confused with any endorsement of the underlying business of Etsy.
Just think for a minute: Why would Google be interested in a money-losing site like this given that it is more of an advertising company than an e-commerce platform?
How does that help GOOG stock or its shareholders?
Etsy is in deep trouble — it’s an overvalued fad stock that executed an IPO to make its early investors rich and will not circle the drain for some time.
We’ve seen this movie before with hot Internet names including Angie’s List (ANGI), which is still struggling to get above breakeven and remains down about 60% from its first price after a 2011 IPO. The narrative often doesn’t fit the reality of these companies, and the pain can be severe.
Google surely knows this. But investors do not — and apparently bid ETSY stock higher based on naive hopes of an acquisition, with a brief short squeeze fueling the fire.
But expect this pop to fade in a hurry as reality sets in. No buyout is coming, and there is little hope for profitability any time soon over at Etsy.
If you are an investor, take advantage of this pop and get the heck out while you can.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.