The entire stock market has taken it on the chin so far in 2016, but few have fared as poorly as artsy e-commerce site Etsy (ETSY). Etsy — the global marketplace that helps people to make, sell and buy unique goods — lost 11% on Monday alone, tumbled a bit more on Tuesday, then slid more than 3% on Wednesday for the cherry on top.
Add it up, and Etsy stock has shed 76% of its value since its first official day of trading; shares are worth less than half their original $16 market price and are actually at their lowest level since the IPO.
Etsy isn’t alone in its struggles, either. Other recent tech IPOs have also been taking it on the chin, including FitBit (FIT), Twitter (TWTR) and GoPro (GPRO). Meanwhile, as I already mentioned, the stock market has been shaky across the board. Just a few days into the year and coming off a slight decline in 2015, the S&P 500 is more than 7% in the red.
Those macro market headwinds, and the accompanying investor skittishness, are bad news for Etsy, especially when combined with some very company-specific headwinds facing the specialty retailer.
Put another way, there’s a good chance the worst is not yet over for Etsy stock.
An Uphill Climb for Etsy Stock
On Monday, a lockup agreement for about 21.9 million shares of Etsy stock expired. While that, in a sense, prompted the selloff, the dramatic nature of the rush for the exits was the result of much more fundamental issues for the company. That’s worrisome, as it suggests more panic could come after the next lockup expiration on April 10, 2016.
One of the biggest recent announcements out of the company was an initiative called Etsy Manufacturing. In a nutshell, Etsy Manufacturing expands beyond the company’s artisanal roots and encourages outsourcing. On one side, this means a bigger potential market for the company. But on the other, it erases the company’s competitive moat, to an extent.
Roth Capital agrees with such as assessment, as evidenced by the recent “sell” rating — a rare bird in the analyst community — that it slapped on Etsy stock. In the firm’s own words:
“With recent emphasis on Etsy manufacturing and the prevalence of cheap mass-produced goods on its site, we see little differentiation between Etsy and similar marketplaces.”
The competitive moat is under siege from all directions, too — which Roth also noted. E-commerce king Amazon (AMZN) recently inched onto Etsy’s turf with the debut of Amazon Homemade and gained some publicity when Martha Stewart ditched eBay for the new platform.
Etsy’s Numbers Offer Little Encouragement
While there were some promising numbers in the company’s most recent earnings report — 22% year-over-year growth in gross merchandise sales, 38% growth in total revenue, and 40% growth in gross profit for the quarter — Roth believes decelerating growth is simply being masked.
At the same time, that growth has yet to show up on the bottom line. Etsy’s loss actually widened in the most recent quarter, while the current year is expected to see a loss of 56 cents per share. That’s a penny worse than analysts expected a few months ago, and far worse than the company’s break-even quarter a year ago.
While investors have been patient in the past as tech companies turned sales growth into profits, that’s less likely in today’s shaky market environment. Such sentiment is evident in the fact that FitBit, GoPro, and Twitter are all struggling, and is yet another reason to take a hard pass on Etsy stock.
The company’s next earnings report is right around the corner, but there’s little chance it will be enough to stop the bleeding.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
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