Kat Panchal hadn’t yet learned how to use her sewing machine when the pandemic started. But in March, when the 34-year-old was fired from her job as a flight attendant at American Airlines and was cooped up alone in her Philadelphia apartment, she taught herself to sew. Soon she was sewing masks and donating them to health care workers.
Ms. Panchal – now on leave – put her masks on Etsy, the online marketplace where artisans and artists around the world sell handmade and vintage goods. She has sold more than 400 masks since April, grossing over $ 4,500 in the process. Sometimes she sews until 4 a.m. to keep up with demand.
“It was a really great blessing,” said Ms. Panchal. “It gave me something else to focus on instead of thinking about losing my job.”
Tens of millions of masks have been sold on Etsy that year. Demand has created business opportunities for women like Panchal, but it has also turned Etsy into something unexpected: a Wall Street darling.
Along with a number of stay-at-home stocks like Zoom Video, Peloton, and Shopify – so named because their businesses picked up on changes in people’s shopping and work habits during the pandemic – Etsy has seen its share price surge . More than 90 percent of Wall Street analysts rate the stock as a “buy”. Individual investors, mutual fund managers, and hedge fund traders have dumped their stocks, which are up more than 250 percent this year. This makes Etsy by far the best-performing stock on the S&P 500 stock index, which it was added to in September – a sign that it is now in the major corporate leagues.
Such blue-chip status would have been a long way off a few years ago for a company that began selling handcrafted wood-paneled computers as a site for a founder in 2005, only to become a punch line for an up-and-coming twee culture treasures Idealism, kindness and sincerity. By 2015, when Etsy went public, it had turned into a crusader for socially conscious capitalism. In its investor bidding materials, Etsy advertised its do-gooder credentials in much the same way as its business prospects.
Chad Dickerson, then Etsy chairman, told investors that the company would not issue guidance on expected quarterly earnings even though investors were given unusual information about their composting practices. The practice “is inconsistent with Etsy ‘s mission,” which was to create a new breed of business that would not follow the traditional corporate path of “evaluating products and profits through the community,” wrote Dickerson.
Wall Street had none of it.
After Etsy recorded a series of ugly losses over the next year, its stock price fell nearly 80 percent. Buyout companies and activist hedge funds began to circle, grabbing stocks and pushing the company to look for “strategic alternatives” – like selling itself.
Etsy finally bowed to Wall Street. In May 2017, the board ousted Mr. Dickerson, and the company laid off 8 percent of its workforce and committed to a change in strategy. A board member, Josh Silverman – a former managing director of eBay and Skype – was named managing director, and the company issued a statement saying it was “focused on maximizing value for all shareholders”.
In other words, it was willing to obey at least some of the Wall Street rules.
Other changes should follow, including major layoffs. Projects that had been in the works for months have been closed. The Values-Aligned Business division, which was supposed to ensure that the company’s socially conscious ethics are anchored in all aspects of the company, has been dissolved and reorganized. In 2017, it was no longer a B Corp – a certification given by a private nonprofit to socially and environmentally conscious companies – that it had advertised as critical to its brand just two years earlier.
While the changes have not been undisputed, especially internally, Etsy reps say the company has significantly increased its focus on corporate values since the management changeover. Mr. Silverman has adopted an MBA-like approach that focuses the company on a few key issues – economic empowerment, gender and racial diversity, and carbon neutrality – where Etsy can make real progress.
“I’m more proud of what we’ve done in terms of social impact than our share price,” Silverman said in an interview. “Now I’m nervous about this quote because it implies that they’re kind of unrelated. And I firmly believe that one of the great things we’re doing is due to our focus on citizenship, ”a term that Mr. Silverman uses to promote the company’s social and cultural endeavors described.
Analysts and investors say Etsy’s advances in operational challenges, from payments to search to shipping, were more important to their changing views about the stock than management’s concern about corporate culture.
Prior to Mr. Silverman’s arrival, Etsy’s homemade approach extended to his own operations. It stored and managed its data on its own servers instead of moving it to a decentralized cloud, as is common in the industry. A clunky payment processing system and slow loading pages blocked buyers.
The search was also a challenge for Etsy, whose handmade and often idiosyncratic items didn’t fit into intuitive and standardized search queries, frustrating potential buyers who ultimately clicked away. This has kept the percentage of people who made purchases on the website low compared to those who only visited the website – a metric that investors refer to as the conversion rate.
“They had these buyers coming, but they couldn’t find what they needed or they didn’t know what they were looking for,” said Chris Mack, a stock portfolio manager with investment advisor Harding Loevner in Bridgewater, NJ, who owned according to recent public records a share of around 17 million US dollars in Etsy for his funds.
When making a purchase, Etsy customers were often annoyed by the high shipping costs and long waiting times for the products to arrive. Some delays were inevitable. Unlike Amazon, Etsy does not have a warehouse with inventory. Most of the items sold on the site are made to order for individual buyers. This process runs counter to the type of next day delivery that many online consumers have been expecting. (Etsy reduces sales by 5 percent.)
As Etsy began to find its financial footing, sales grew faster and overhead costs fell. It migrated back-end operations to Google’s cloud services division, leveraging the larger company’s search expertise and increasing processing speed.
Etsy ended 2017 with its share price rising more than 70 percent as it made profits, and stocks continued to climb over the next year. Wall Street remained uncertain, however, and the company’s shares traded wildly through 2019 as they posted disappointing financial results. (Etsy’s CFO Rachel Glaser is on the board of directors of the New York Times Company.)
Then in April came the mask boom. Almost immediately after the Centers for Disease Control and Prevention recommended face coverings, mask searches exploded on the site, with nine searches per second over the first weekend of the month. When desperate shoppers cleared shelves and inventory of manufactured masks, many turned to Etsy for handcrafted options.
“It was like waking up and finding that it was Cyber Monday, only that everyone in the world only wanted one product and that a product was only available in extremely limited quantities,” said Etsy boss Silverman .
Nearly 54 million masks, valued at $ 600 million, have been sold on the site since early April. The boom has proven surprisingly long-lived and has helped improve the company’s key earnings and sales metrics. In the third quarter, the total value of goods sold on the site excluding masks also increased 93 percent as home-bound Americans bought home furnishings, craft supplies, jewelry, and accessories.
Wall Street was impressed with Etsy’s ability to handle the surge in mask orders – which required agile computing power, rapid search optimization, and a fastidious pace for shipping – and shed light on the company’s progress.
“They could use Covid to either bring new customers to the platform or bring old customers back to a better experience,” said Jason Helfstein, an analyst at Oppenheimer & Company, who reports on Etsy. “If you were looking for something, you actually found it. Or when you bought something it actually came pretty quickly, not weeks later, which were some of the problems with what we’ll call the old Etsy. “