Etsy made 2 massive acquisitions at peak tech valuations. Two years and a $1 billion write-off later, it has buyer’s remorse as it sells Elo7.

  • Etsy said it would sell Elo7 two years after buying it for $217 million.
  • Etsy bought Elo7 and Depop at a time when tech valuations were sky-high.
  • E-commerce companies have also faced inflation and a changed online spending environment.

Two years after making two high-profile acquisitions, Etsy executives revealed on Tuesday that one did not go as planned.

Etsy announced that it had sold Elo7, the Brazilian online marketplace it purchased in July 2021 for $217 million, to Enjoei, another Brazilian online marketplace, for an undisclosed sum.

The announcement came roughly eight months after Etsy announced a $1 billion impairment charge to write down the value of its acquisitions of Elo7 and Depop, which it also purchased for $1.625 billion in July 2021. This included $897.9 million in Depop charges and $147.1 million in Elo7 charges.

Analysts told Insider that it could have been a case of bad timing.

“These acquisitions came at a time when market multiples were high, and they essentially paid a premium price for it,” said Shweta Khajuria, managing director for internet equity research at Evercore ISI. “And then the market sort of turned against them.”

High inflation, a recessionary environment, and a return to normal rates of growth for e-commerce companies that saw huge sales boosts in the early days of the Covid pandemic have also occurred in the last two years.

Etsy CEO Josh Silverman stated in a statement included in a filing with the SEC on Tuesday that Elo7 had underperformed despite the team’s best efforts.

“Although the Elo7 team has worked very hard to build a beloved marketplace and vibrant community in Brazil, we have not seen the performance we had anticipated when we made this acquisition two years ago, in part due to the macroeconomic environment,” CEO Josh Silverman said in a statement about the sale.

“Given the circumstances, we believe that this is the best outcome for Etsy, our stockholders and other stakeholders, Elo7 and its employees, as well as the Elo7 buyer and seller communities.”

An Etsy representative declined to comment beyond the SEC filings.

‘The management team is willing to admit when they feel like they’ve made a mistake on something’

Elo7 accounted for less than 1% of Etsy’s sales and revenue, and it was not profitable. Elo7 contributed $69.7 million to Etsy’s total sales of $13.3 billion in 2022. Analysts estimate it contributed $7-9 million to Etsy’s $2.6 billion in revenue in 2022.

Nonetheless, the sale came as a surprise because many expected it to become a bigger driver of growth for Etsy in Latin America, a region where it does not yet have much reach.

“What it also indicates is that the management team is willing to admit when they believe they have made a mistake on something, to act rationally, and to refocus on the core business,” Bernstein analyst Nikhil Devnani said.

Etsy is not the only e-commerce company that has quickly divested a subsidiary it acquired during more prosperous times. Shopify divested the majority of its logistics business in May, less than a year after spending more than $2 billion on warehouse software company Deliverr. Shopify executives stated that the acquisition had distracted the company and that it needed to refocus on its “main quest.”

“Anyone who bought something during that window probably feels like they mistimed an acquisition,” Devnani said.

What’s next for Etsy’s portfolio of brands

Following the sale of Elo7, Etsy’s portfolio will consist of its main marketplace, Depop, and Reverb, a musical instrument online marketplace.

Depop is already far larger than Elo7, with $552.1 million in sales in 2022. It has a strong following in Etsy’s core markets of the United States, the United Kingdom, and Europe, and it fits well into the popular resale trend among Generation Z.

However, Depop, like Elo7, has had some growth challenges since the pandemic-related e-commerce boom ended, and it is also not profitable. Etsy will now have to demonstrate to investors that it can make Depop profitable while also growing the core Etsy platform.

Analysts noted that Etsy has demonstrated a willingness to invest in the Depop platform. It is experimenting with new tools such as artificial intelligence and personalized marketing, and it appointed longtime Etsy executive Kruti Patel Goyal as CEO in September.

“They’re running Depop very similarly to how they’re running the Etsy marketplace platform,” Khajuria explained. “They also need to spend more on marketing to attract and retain the right users on the platform, and then add more value-added services for the sellers.”

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