Tomorrow, Etsy (ETSY), the online arts and crafts outlet is going to IPO. When I hear IPOs I still think back to the dot-com boom-bust days. Knowing that IPOs could be quite unpredictable I mostly just watched the news about Etsy from afar. I didn’t even know that I could, as a retail investor, get in on the action. Recent IPOs by companies like SolarEdge (SEDG) and GoDaddy (GDDY) have raised lots of capital and made underwriters and company insiders very happy with the initial IPO bounce. To be honest, I don’t know if Etsy will do the same. I actually thought about writing this post tomorrow, after the IPO, in case the stock tanked, but that’s no fun right?
Getting in on the action
Apparently Etsy planned to have retail investors and sellers get in on the action. They set aside some shares to be distributed by Morgan Stanley (MS) and other underwriters to small timers, limiting them to $2500 total share value. Peter sent me the link for signing up for a spot in line through Morgan Stanley. At first I thought, “there’s no way a small fry like me can get in on the IPO” but then I read this great WSJ write up which detailed the IPO strategy.
I’ve dabbled a bit in finance stuff, including running a small fund with my cousin Wilson and actively trading stocks for the last four years or so. So of course first, I did some research. Morgan Stanley’s site contained Etsy’s prospectus and several analysts wrote up their thoughts on the IPO (such as this one from TechCrunch’s Ezra Galston). All of this information was freely available and helped me make my choice. Really, it is an informed gamble at best. I have no idea really how the market is going to react to the implied valuation (5x 2015 projected revenue which is apparently lower than the usual 7x valuation that most companies are basing their IPO share price on) and how much confidence the market has in the projections that Etsy has put together for 2015. Additionally, the media has glommed onto key points about Etsy’s business model and philosophy, playing up a few lines from the risk analysis such as ‘Etsy may never be profitable’ and ‘Etsy will do things that shareholders may not like, in order to ensure other goals are met like environmental sustainability’. To me, these are interesting pieces of information that shed more light on the psychology of Etsy’s management than their actual business strategy. There were more than a few companies that people thought could never become profitable (cough cough, Facebook) and some that haven’t had much in the way of profits over their entire history (Amazon, looking in your direction).
It was actually easier than I thought it would be to line up for a chance to get shares. I went through a five stage process on a special Morgan Stanley website (investment banks really don’t bother hiring designers do they?) which asked for identifying information, some demographics, legal check boxes (are you an insider? do you work for the government?), and how many shares you wanted. I also sent them a W9 for tax reporting purposes. With my spot reserved over the weekend, I waited patiently for the announcement from MS on whether or not I would get allocated any shares.
I got shares, I got shares!
6pm Wednesday came around and no email from MS. I thought, well, I’m not getting any shares. About 15 minutes later, email notification! I was allocated 100 shares and I wound up buying 50 at $16 a share. I sent my payment info to MS and now I own a tiny piece of hipster paradise. No seriously though, Etsy has made a lot of people a lot of money and brought joy to millions who like arts and crafts. Will Etsy be able to stick to its roots and principles? I’m not sure. But does it have to? Or can it find some compromise stance, perhaps similar to how Ebay is set up now? While not totally comparable, Facebook (FB) transitioned successfully to a commercially viable company over time and Twitter (TWTR) is now trying to do the same. In the end, only time will tell. Similarly, time will tell me tomorrow if betting on Etsy was smart or not. Find out tomorrow when I edit this post!
Disclosures: Long FB, long TWTR, I have a small position in ETSY
I sold all my shares through MS DSP this morning at market open. If you hadn’t heard already Etsy had something of a great IPO. Good for them. Many sellers were able to get in on the action too, which is a small (and nice) way of Etsy thanking them for helping to build the community. That’s a good start for a company that professes to be good.