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Comment by djloche | Hacker News Reader

The numbers at a glance:

Revenue 2012 $74.6M+ 2013: $125M+ 2014: $195.5M+

Profit: Net loss 2012: (2.3M+) 2013: (0.7M+) 2014: (15.2M+)

$88M cash on hand - so they can afford to run at a loss for a few years while they grow the company. I guess it makes sense to go public and raise more cash while the market is hot.

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It looks like there Free Cash Flow in 2014 was about $4MM positive so they aren't really burning cash

How's that possible?

I would expect them to be investing heavily which means low FCF even with positive profits. I also doubt they are decreasing inventory (do they even hold it?)

Maybe the positive cf is just a fluke due to Xmas season? If you sell a lot before the end of the year, and only pay your sellers in Jan, and you have an exponential growth, then the positive cf may mean nothing..

Some growing companies have positive cash flow but negative earnings as long as they are growing.

For example, they may take credit card payments from customers, but pay suppliers on terms. In which case growth causes consistent annual free cash flow higher than earnings.

Amazon is a decent example of this where their earnings suck, but their FCF has been reasonable every year.

I'm not sure about the particulars of how Etsy issues payment to suppliers though.

If you look at their expenses, a huge chunk of their 'loss' is them issuing shares to employees. They're required to count this as a cash expense. You can make the argument that they could be profitable if they stopped granting shares, but in reality, this is part of their employee compensation plan and if they stopped issuing shares, they'd likely have to incur actual cashflow costs in order to keep their employees (eg. higher salaries or cash bonuses). Amazon is in a similar situation.

Hold on ... is that $195.5M in revenue their actual revenue from listing fees? Or is that the total sales revenue from all the sellers?

The former, it seems. (Page F-80)

"Revenue is mainly generated from commissions on sales made by listed sellers and from the sale of advertising on the Company’s website"

Yeah, it's the former. Their 2014 GMS (Gross Merchandise Sales) was closer to $2B.

My financial analysis skills must be weak but how does a company take a loss every year yet also have $88M in the bank?

they raised more than 88 million in the past?

They've taken $97.3M before: https://www.crunchbase.com/organization/etsy

Presumably they had some profitable years prior to 2012 or have maintained limited losses.

Either way, it looks like they're gearing up for some big growth in the next few years. They dipped into the coffers in 2014 and will raise a lot of money from this IPO, so they'll have plenty of cash to burn on fast growth. It should be interesting to watch!

Hrm, that's a bit of a red flag to me. Why bother raising so much money if you're not going to utilize it? Surely growing your business will outpace average annual investment returns. I'm sure the investors have to be annoyed they basically just transferred their assets to Etsy to sit on and not utilize.

And now they're trying to raise an additional $100M via an IPO? It's not like Apple who are literally in the position of "We have so much money we don't know what to do with it."

> I'm sure the investors have to be annoyed they basically just transferred their assets to Etsy to sit on and not utilize.

Considering they all stand to make a bundle through the IPO I'm sure the investors are collectively not-annoyed that Etsy hasn't wasted their money.

Just depends if the money could have been used for further growth, or not.

The only challenge will be timing when the Etsy fad bubble bursts.

I think people said the same thing about Ebay.

Having cash on hand has optionality value (larger universe of possible deals and better batna in each deal negotiation).

> Why bother raising so much money if you're not going to utilize it?

How do you know they aren't going to use it?

Net income includes non-cash expenses (i.e. it doesn't explain change in cash position--that's what Statement of Cash Flows is for). Cash flow can be positive with a loss and vice versa.

Profit/Loss != Cash flow

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