Etsy Inc. is poised to carve out a big valuation for itself as the e-commerce company readies an initial public offering.
The online marketplace for handmade and vintage goods could seek about $300 million from the share sale as soon as this quarter, people familiar with the matter said. If it sells the 15 percent stake that’s typical of technology-company IPOs, that would imply a valuation of about $2 billion.
While the Brooklyn, N.Y.-based company hasn’t disclosed an IPO prospectus yet, the Associated Press reported in May that the company’s been profitable since 2009. Other e-commerce companies, such as food pickup and delivery service GrubHub Inc. and mother and baby marketplace Zulilly, fetch around 100 times earnings.
Etsy charges for sellers to list their wares and takes a commission from each item sold. Like Alibaba Group Holding and GrubHub – which connect the buyers and sellers over the Web but don’t serve as a merchant themselves – it uses a model that tends to have a higher profit margin, said Tom Forte, a retail analyst at Brean Capital.
“Investors have preferred, when it comes to e-commerce, companies that are marketplaces,” he said. “As a result, Etsy ought to receive a higher valuation.”
The company also generates revenue from advertising and payment processing. Its website shows $1.35 billion in 2013 gross merchandise sales – or the value of transactions conducted through its marketplace.
Etsy has made a preliminary filing for its IPO under the Jumpstart Our Business Startups Act, a person familiar with the matter said – something that’s only possible for companies with revenue of less than $1 billion.
With large U.S.-listed e-commerce and Internet-services companies including EBay Inc. and Amazon.com Inc. fetching a median of 4.3 times expected sales, Etsy would need to show it can produce annual revenue of about $400 million this year to substantiate a $2 billion valuation.
A representative for Etsy declined to comment.
That’s not to say investors won’t be wary of the risks Etsy faces. E-commerce is traditionally a tough field for startups to gain scale in because of the dominance of Amazon.com. Some of Etsy’s e-commerce peers have run into hurdles – with Fab.com recently winnowing down operations and Gilt Groupe still private after having worked on an IPO last year.
Investors could know more soon – a first-quarter IPO means the company could open up its books to scrutiny as soon as next month.