Etsy I.P.O. Tests a Corporate Commitment to Social Issues | Hacker News Reader

Etsy I.P.O. Tests a Corporate Commitment to Social Issues

nytimes.com

39 pointsdigital5525 comments

Sometimes I don't understand this world.

"Though Etsy has become a significant business, with sales jumping 56 percent last year from the previous year to $195.6 million, it still booked a loss of $15 million."

How in the hell do you spend $210 million dollars running a marketplace website?

"Etsy shares opened Thursday morning at $31 a share, almost twice their initial public offering price"

Why in the hell are people snapping up these shares when the company admitted they may NEVER make a profit? What is going on with the tech industry?

There's a breakdown of their spending in their S-1 filing [1], under Consolidated Statements of Operations.

According to this, they could be profitable if they wanted to be, but they are using their profits and re-investing in growth.

E.g. they more than doubled their spending on marketing from $17.8m to $39.6m from 2013 to 2014.

[1]: http://www.sec.gov/Archives/edgar/data/1370637/0001193125150...

> According to this, they could be profitable if they wanted to be, but they are using their profits and re-investing in growth

Which is one of the things that differentiates a startup from a lifestyle business. It's the whole point of taking funding and trying to accelerate growth.

For Lifestyle businesses growth is also a priority. But margins like -715.90%(!!!) (Hortonworks) or -54.87% (New Relic) shows massive immaturity as a business. Post-IPO businesses in such early-stage has a big threat to the tech industry. If they fail (there is a big chance to bankrupt within a year without funding, according to their financial metrics), they make more hard to float for other companies later.

>How in the hell do you spend $210 million dollars running a marketplace website?

Salaries. They have a few hundred employees, who are from the sounds of it pretty well paid (they're located in NYC, too).

Perhaps I should rephrase the question. WHY do you need hundreds of employees to run a marketplace website?

And if it's truly only a couple hundred they are EXTREMELY well paid.

Etsy has over 150 engineers, all living and working in NYC; of course they are 'EXTREMELY' well paid.

Engineers, UX, support staff. There's an entirely separate office in Hudson, NY for security and telephone support for buyers/sellers. Plus rent in Brooklyn isn't cheap (they likely have a fantastic deal for their early office space but DUMBO is an overleased market at this point and they are fitting out new space in "DUMBO Heights").

All the jurisdictions Etsy operates in require various forms of compliance, which you could waste engineer time on or hire dedicated employees to handle. And by going public they've likely had to hire 15-20 people to support their CFO and run compliance.

"DUMBO Heights"?? I thought we were supposed to call that RAMBO (Right Above the Manhattan Bridge Overpass).

Real estate naming. Go figure.

Yeah, that's the regrettable name the real estate developers came up with. I suspect BQE Heights didn't have the same melodious ring.

For the non-NYC people: "DUMBO Heights" is a cluster of buildings just South of DUMBO, Brooklyn on the other side of the Brooklyn–Queens Expressway (BQE) which were owned by the Watchtower / Jehovah's Witnesses until I believe 2012.

See http://dumboheights.com/ (warning: real estate developer site).

* edited: directions in DUMBO are easy to confuse. What you think is north-south is east-west and vice/versa.

Presumably, sales != revenue -- they're making a much smaller % of sales as commission.

As for the price:earnings ratio being a negative number -- etsy's sexy, more profitable businesses may not be.

"Why in the hell are people snapping up these shares when the company admitted they may NEVER make a profit? What is going on with the tech industry?"

I wouldn't necessarily care if they make a profit. I would care that there's a greater fool coming behind me that I could sell the shares to.

If anyone is interested in the funding history/investor returns in Etsy, we made a cool infographic about it: https://equityzen.com/blog/etsy-path-to-ipo/

Hey. I was the fifth employee at Etsy. It was the three co-founders, a guy in Arizona (or was it New Mexico) doing Flash, then me. It was pretty a weird and wild ride.

I was hired to write the Etsy Middle Layer "Emid" server. They told me at one point that they were arguing about being able to find python developers and one of them went on Craigslist to settle it and mine was the first resume they saw. (That was personally kind of a let down. I just got lucky.) We had a phone interview. I mentioned that I used Dvorak and that clinched it. I worked from home for months before ever meeting the others.

The "emid" server was pointless: nearly three hundred api calls and fully 80% of them were bodyless wrappers. Just a decorator that did the real work, the function def, and a docstring to please the syntax (could have used a pass statement.) All the real "business logic" was in stored procedures in the DB. Yes, the DB was constantly on fire as we scaled up (our numbers were mind-blowing the whole time I was there. Up, up, up, and accelerating.) The idea was that emid would sit between the web servers and the db and provide some caching and other scaling support, but we never effectively used it. We actually did not turn on the caching until the investors forced an outside tech consultant on us to try to get some management of the horrible scaling fires that were constantly happening. So emid just sat there consuming resources. It had one good use though: when the system messed up (because the DB was almost-literally on fire) the ops/dba dude could complain to the CEO about "the emid problem" and pass the buck.

There's a lot of stories I could tell, but I don't want to "talk trash". Overall the users LOVED us and that's what really counts, eh?

Also, for what it's worth, the whole "Etsy was born in 2005 in a Brooklyn loft as a way for one of its co-founders to sell his handmade wooden goods." story, although it sounds great, is B.S. as far as I know. The original three were pretty close with the info (I do NOT know what "Etsy" stands for or means, don't ask) but they did let it drop that they had picked up the site from someone else who had originally made it but didn't want to do anything with it. Certainly the original three are responsible for it taking off like it did, them and dumb luck.

One highlight was that I got to work with Glyph (of Twisted networking engine fame, now at Apple I believe.) He was a class act and I learned a lot from him. I got to watch over his shoulder as he implemented a Twisted client for memcache. Woo!

Final take away: you can get away with ALL KINDS of crazy B.S. when you're sitting in a fire-hydrant of money.

(And how much would anyone reading this like to bet me that I'll never see a penny from the IPO? Please? It's the only way I'll make anything from being involved in this weird and wonderful enterprise)

How long did you work at Etsy?

I think about a year and a half or so.

Previously at Apple, currently at Rackspace :-).

(Thank you for your kind words.)

(You're very welcome. Meant every word. :D )

"Etsy shares opened Thursday morning at $31 a share, almost twice their initial public offering price"

WOW - sounds like the banks really mis-priced this IPO

Pricing IPOs is weird. You'd think they should go for an auction and just capture all the value. But for various silly reasons, IPOs are usually priced to `pop'. (It took me a while to work out why, and I'm still not convinced.)

Bulge bracket investment banks recommend you sell stock to them and their clients at a reduced price for N reasons. Not terribly surprising.

Didn't Google use some sort of auction at their IPO? They're the only company I've heard doing something like that.

They used a modified dutch auction:

http://www.forbes.com/2004/05/10/cx_aw_0510mondaymatchup.htm...

Yes. Although you do need a "pop", meaning you can't charge the actual value; you have to underprice it somewhat. If you pop, you get the news and the excitement that comes with launching on a high note. If you overprice, and shares tumble the first day, then you've pissed off the initial investors, and everyone else is scared to invest because of that initial tumble. It makes it much harder to get back to a decent standing.

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