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> Though the site still loses money because of high development costs, it is booming, with gross merchandise sales reaching $1.93 billion last year. The fees Et
by Blahah 12y ago
> Though the site still loses money because of high development costs, it is booming, with gross merchandise sales reaching $1.93 billion last year. The fees Etsy collected on items listed and sold, as well as on services like the promoted placement of goods, reached $196 million.
This reads to me as though Etsy has spent more than $196 million on development in the last year. Am I reading it right? If so, that's insane.
If they aren't capable of making a profit with $196 million in revenue, when what they operate is a website, it seems unlikely to me that they will ever make a profit. The problem is compounded by their model (as highlighted in the article), which prevents any individual seller from scaling up very far. So how will they ever make money?
- detaro 12y agoNo, they spent ~37 million on "product development" and made a loss of around 15 million. (per their S-1 filing) I don't really know what a "normal" distribution would look like (why does the article attribute the loss to the development costs?)
- brador 12y agoWhat does "product development" mean here? Are they juicing the marketplace like kickstarter was alleged to have done/be doing?
- sb8244 12y agoSame questions here. Obviously there are costs involved with the business, but basically $150 million (minus taxes they pay) revenue after development costs. Where does it all go?
- jasonlotito 12y ago> when what they operate is a website They do more than just operate a website. They are in the hardware market as well. You can accept credit cards from your phone and it will run through Etsy, which is handy for sellers rep on Etsy. I'm not sure what else they do, but it's not just running a website.
- adevine 12y ago"When what they operate is a website" - you mean like eBay, AirBnB, and others? From their S1: 1. 122 million is cost of revenue, which means their support staff cost, server/bandwidth costs, and transaction fees (e.g. credit card fees). 2. 40 million marketing, I'm guessing mostly paid search. 3. 37 million product development. 4. 50 million "general and admistrative" Point being, they could probably easily be profitable if they wanted, but at this stage they are trying to invest for growth. As you point out, though, that growth will be difficult if they have this inherent limit on production capacity.
- at-fates-hands 12y ago>> but at this stage they are trying to invest for growth. I think we know how a lot of startups recently have taken this approach and its failed miserably. Groupon is the first that comes to mind. I'm wondering how many more companies have to fail before they realize growth is good, but doing it at a loss is not the way to sustain your business. I guess everybody thinks they're Amazon?
- untog 12y agoMore like everyone has investors who demand a large return. That's the problem with taking VC cash - you're at their beck and call. You could build a perfectly good sustainable business, but VCs want hockey stick growth and an IPO.
- wcummings 12y agoGroupon invested in growth, but that's not why they failed.
- brainflake 12y agoI think you're simplifying it too much. It's easy to come to that conclusion in the current market with so much cash floating around, but if the growth rate is there, then it can make a lot of sense to continue spending for that growth. Brad Feld had an interesting post as kind of a back of the envelope for what your finances should look like (http://feld.com/archives/2015/02/rule-40-healthy-saas-company.html http://feld.com/archives/2015/02/rule-40-healthy-saas-compan...). Of course it's intended for companies 'at scale', or around $1M MRR for a SaaS company. There are plenty of examples of companies that operate like this that you probably wouldn't consider reckless with their spending. HubSpot comes to mind.