Etsy, Inc. (NASDAQ: ETSY) made its stock market debut through an initial public offering (IPO) priced at $16 a share on April 16, 2015. While the share price quickly shot up to $31 in the first couple of days, it then started a precipitous decline that continued into 2016. After closing at a low of $6.90 on February 8, 2016, Etsy stock climbed slowly over the following two years and was trading at $32.99 on June 13, 2018.
Etsy is a peer-to-peer e-commerce website where users buy and sell mostly handmade crafts, vintage items, art, and photography. It works like a cross between Amazon and eBay but with a focus on unique items as opposed to mass-produced merchandise. The site launched in 1998 and grew steadily over the first decade of the 21st century. The company made its one-millionth sale in 2007, and in 2008 received $27 million in venture capital money.
The company announced its IPO in March 2015 and officially went public on April 16 of the same year. After a brief initial surge, the stock began declining, and by mid-June, it had fallen below the IPO price of $16 per share.
Analyst Matthew Frankel at The Motley Fool ranked Etsy as the worst IPO of 2015. Though the company is still adding users and enjoying robust revenue growth. It faced a challenge from rival Amazon’s handmade section that launched in 2015 but has managed to hold its ground.
How a Day Three Investment Would Have Fared
One way to determine if you should have invested in a company early is to put yourself in the shoes of an investor who got in shortly after an IPO.
If you had invested in Etsy stock on day three, you would’ve seen the shares in the red through January 2016 but would’ve actually made some gains by mid-June, 2018.
The IPO price was $16, but shares were trading above $30 by the end of the first day. The decline began in earnest on day two. On Etsy’s third trading day, April 20, 2015 the stock opened $28.77 and closed at $24.90.
Assume you purchased your shares toward the end of day three when they were trading at $25. If you had purchased 100 shares, your initial investment would have been $2,500. Over the ensuing nine months, you would have watched and winced as that total steadily declined. As of mid-January 2016, Etsy shares traded for under $7 and your investment would be have been worth under $700. If you had held onto the stock, it would be worth nearly $3,300 as of June 13, 2018, a gain of 32% on your initial $2,500 investment.