Is an Etsy IPO a Good Investment?

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By Jacob Maslow

sewing suppliesNow that the market is overheated, and a lot of investors are looking for the latest and greatest tech stocks, it is no surprise that many tech companies are filing for IPO. This should be expected. The problem for investors is that there is so many potential IPOs in the pipeline that it’s very easy to get blindsided by hype and buzz. It’s easy to get taken in by the frenzy around tech stocks. Blame it on the success of Twitter or Facebook or the NASDAQ hitting the 5,000 mark. Whatever the reason is, there is a lot of frenzy in the market, and it’s very easy for stocks that aren’t really worth a whole lot of money to get sky-high valuations. It’s the big danger that you should be aware of when looking for IPO stocks to invest in.

One particularly interesting IPO stock is Etsy. Etsy is an arts and crafts, handcrafted, custom product auction place. It’s similar to Ebay in terms of the business model. It operates a marketplace, and it makes money off listings and completed transactions.

While its membership base is quite attractive, you have to look behind the numbers. By the end of last year, it had 54 million members with 1.4 million active sellers. The numbers of active buyers, on the other hand, reached 19.8 million. This sounds pretty impressive especially given the fact that a lot of this traffic is coming from mobile devices.

By all appearances, this company is doing things right. However, if you look at the bottom line, it is generating money, but it is generating a loss. All told, Etsy sellers generated $1.93 billion worth of sales. The company earned $195.6 million from all this action. With all that said, it still managed to generate a loss of $15.2 million.

Is Etsy a good buy? Well, keep in mind that a lot of tech stocks generate a loss at first and then things stabilize eventually, and they start making a profit. It’s still early to tell whether this will happen to Etsy. Regardless, you need to look at the numbers carefully, and you need to look at general consumer trends before making your move.

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