Etsy on Tuesday announced that board member Josh Silverman has replaced Chad Dickerson as CEO effective immediately. Mostly recently, Silverman was president of consumer products and services at American Express, and previously chief executive at Skype, eBay’s shopping.com and Evite, Inc., which he also co-founded, according to a company press release.
The crafts marketplace also said it will eliminate about 80 positions or approximately 8% of its workforce. The moves came the same day that hedge fund Black-and-White Capital, which owns 2% of Etsy’s shares, released two letters highlighting critical issues and necessary steps to address them, including steep deceleration of gross merchandise sales growth, poor corporate governance (including the need to separate the chairman and CEO roles) and a need to “explore strategic alternatives” to maximize shareholder value — presumably including a sale.
Also Tuesday, Etsy posted a first quarter loss of $421,000, down from a $1.2 million profit in the year-ago period. Q1 revenue rose 18.4% to $96.9 million and Q1 operating expenses rose 36.4% to $64.3 million. Gross merchandise sales rose 14.2% (or 15.2% on a currency-neutral basis) in the quarter to $719.0 million, supported by 12.4% year-over-year growth in active sellers and 18.5% year-over-year growth in active buyers.
Troubles at Etsy and its rapid response to Black-and-White Capital’s call for new leadership and decisive action overshadowed the launch earlier this week of its long anticipated Etsy Studio, a crafts supplies marketplace.
Two years after its initial public offering and less than two years after the launch of “Handmade at Amazon,” Etsy is faltering. Shares have slumped since its IPO and fell another 16% on Tuesday, as Amazon’s rival marketplace has proven to be stiff competition.
But Black-and-White Capital also slammed the company for its spendthrift ways. “[M]anagement’s efforts have failed to fully capture this tremendous opportunity for growth,” Black-and-White Chief Investment Officer Seth Wunder said in a statement. “[T]he company’s historical pattern of ill-advised spending has completely obfuscated the extremely attractive underlying marketplace business model, which should produce incremental EBITDA margins of greater than 50% with low capital investment requirements.”
The company immediately began its cost reductions with the announcement of layoffs Tuesday, but executives told analysts that marketing expenses would likely rise. “I think it's worth noting, Etsy did not do any marketing for the first eight years of its history and traditionally when you have a marketplace vibrant enough and good enough to earn a direct traffic as the Etsy marketplace does, with the breadth and depth of really terrific inventory from great sellers like Etsy, that’s something you want to talk about,” Silverman said, according to a transcript from Seeking Alpha.
“I think that quite candidly we have done some good work in the last few years to start to build those capabilities, but I'm very enthusiastic about the continued upside that we have to invest further marketing dollars and in infrastructure and capabilities to put those marketing dollars to work at very high ROI.”