By Suzanne Kapner and Tess Stynes
Etsy Inc.'s tax-reducing handicraft came at a high cost.
The online crafts bazaar reported a deeper-than-expected loss in
its first outing as a public company thanks to millions of dollars
in costs associated with a restructuring it said could lower its
future tax bill.
The company, which began trading publicly after an IPO last
month, also reported lower-than-expected sales and warned of rising
expenses as it ramps up hiring and spends more heavily on
marketing.
Shares fell 17.4% to $17.34 in after-hours trading. Through
Tuesday's close, the stock had risen 31% from its initial public
offering price of $16. On its first day of trading in April, the
stock surged as high as $35.74 before closing at $31.
Etsy lost $36.6 million in the first three months of the year,
compared with a year-earlier loss of $463,000. Revenue jumped 44%
to $58.5 million.
Analysts polled by Thomson Reuters expected revenue of $59
million.
The company said its restructuring led to a $10.5 million
increase to its tax provision and a $20.9 million loss on
currencies largely because of intercompany debt taken on as part of
the moves.
The company said it has shifted to a more global structure now
that about 30% of its gross merchandise sales come from outside the
U.S.
It didn't provide details, but an earlier securities filing
indicated the changes involved transfers of intellectual property
within the company.
"Our new corporate structure changes how we use our intellectual
property and implements certain intercompany arrangements, which we
expect may result in a reduction in our overall effective tax rate
and other operational efficiencies," Etsy said in the filing.
Etsy said in the filing its European headquarters are in Dublin,
Ireland. The company says it will continue to pay taxes at the
local rate in the jurisdictions in which it operates.
Etsy was founded in Brooklyn in 2005. A sort of eBay to the
crafting set, it makes money charging fees for sellers of handmade
goods like jewelry, housewares and T-shirts to use its platform. It
doesn't produce anything itself. The company has incurred net
losses in the past three years, even as its revenue has increased
sharply.
Etsy said its business was on track and that it continued to
expand into new areas. It has a partnership with Whole Foods that
lets some manufacturers sell their goods at the grocery chain.
The number of active sellers on the site rose to 1.4 million
from 1.1 million a year earlier. As defined by Etsy, an active
seller has been charged fees in the past 12 months for services
like transactions, listings and direct checkout. The number of
active buyers--those that have made at least one purchase in the
past 12 months--rose to 20.8 million from 15.3 million a year
earlier.
The company's operating expenses soared 73% to $42.7 million, as
Etsy spent more on marketing, product development and incentive
compensation. But its gross margin rose to 64.6% from 62%, as the
company made more profitable sales.
Etsy said second quarter results also could be affected by the
strong dollar, which it said is affecting buyer behavior outside
the U.S.
Write to Suzanne Kapner at Suzanne.Kapner@wsj.com and Tess
Stynes at tess.stynes@wsj.com
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