The weak dollar meant huge losses for Etsy in 2015. In their November report, it reported a comprehensive loss of $39,646,000. This is a difference of more than 60 per cent from last year, before the company went public.
Etsy boasts sellers and buyers from nearly every country in the world and offices in seven countries, including Canada. An emphasis on a worldwide community of handmade goods, like customized T-shirts, lamps and necklaces, is part of the company philosophy, but according to the last quarterly report, it’s also the reason they’re reporting large losses.
“We believe weaker local currencies in key international markets continued to dampen the demand for U.S. dollar-denominated goods,” it stated. The company deals in U.S. dollars, so any expenses incurred in markets outside the United States are then converted to USD and reflect as a loss. It’s reported more than $15,000,000 in foreign exchange loss.
(To see the entire financial statement in DocumentCloud, please click on the annotated image.)
“They call it a secondary thing. I don’t call it secondary,” said Scott Bedard, a consultant based in Edinburgh.
Canada is one of the countries with a large Etsy market. While the Canadian dollar has been a factor in Etsy’s losses, Etsy Ireland had a currency exchange loss of $15.7 million. With its weak financial situation, the intercompany debt between Ireland the U.S. office is expected to be a continuing problem.
These losses have contributed to a steady decline in Etsy stock prices since they went public in April 2015 and staying below $10 since they released the November quarterly report. The stock is at $7.76 as of Jan. 30.
Etsy had hoped to make up for those losses over the holiday season, a time when they’ve historically sold more than the rest of the year, according to the report. However, it said if low currency continued outside of the U.S.—as it has—there was reason to believe it would “dampen the demand” for American priced goods.
The numbers for the holiday season have not yet been released, and the company declined to comment before the next quarterly report, expected in February.
There’s a lot of competition with online vendors facilitating independent sellers—Amazon Marketplace, Alibaba and eBay have much bigger operations are able to offer cheaper or free shipping, as well as flexible return policies.
In the report, the company stresses that “authenticity” and a sense of community are what helps it connect both with sellers and buyers, so they’re making a choice to buy into more than a single purchase. It also states that the personal relationships between the company and its sellers and buyers are essential to its branding in every country.
Many of Etsy’s more than $44,000,000 in marketing expenses have gone into attracting sellers in the many international markets it serves. It has more sellers than ever, with 1,533,000 active sellers—about 250,000 more than the year before. Since the goods are mostly not being sold in U.S. currency and have to then be converted to U.S. dollars, the investment isn’t doing the company any favours.
“It doesn’t translate into anything, because the goods shouldn’t be sold on Etsy, or they’re not going to be sold on Etsy,” said Bedard.
And as close as each seller and buyer may feel to the company, the reported losses means the global market is putting a strain on the profitability of the business.
Etsy by sabrinanemis on TradingView.com
Source: TradingView.com