AMZN Attack: Why Did eBay Stock Fall Further Than Etsy Stock?
Down goes eBay stock! Shares of eBay Inc. (NASDAQ:EBAY) got pummelled on Thursday, October 8th as the company was broadsided by an announcement from one of its rivals.
Amazon.com, Inc. (NASDAQ:AMZN) launched a new marketplace for handcrafted goods to crush Etsy, Inc., but eBay stockholders ended up as the collateral damage.
Having decimated brick-and-mortar retailers, Amazon is obviously defending its digital supremacy. For over a decade, Amazon stock soared even as the company’s profit ranged from paper-thin to nonexistent.
Part of the reason is investors trust CEO Jeff Bezos. However, they don’t feel quite as generous with eBay stock. You can see the disparity in trust between the share prices of both companies.
EBAY stock is up 123% over the last five years, whereas AMZN stock rose 224%. Now the company is looking to poach market share from Etsy.
Amazon premiered a new service called “Handmade at Amazon” to increase its sales of artisan goods, a segment of the market cornered by Etsy. ETSY stock took a hit as investors priced in the damage, but the biggest decline came from EBAY stock. (Source: Amazon’s Foray Into Handmade Goods Takes Direct Aim at Etsy, Bloomberg, October 8, 2015.)
How ETSY Stock Became a Hot Commodity
Etsy has proven itself a viable threat to Amazon. The web site connects artisans from around the world with customers in search of personalized products.
Who knew necklaces, rings, and a range of other handmade items could be so lucrative?
Etsy’s road to the pinnacle of e-commerce and online retail has been swift and organic. In 2005, the company was founded in a small Brooklyn apartment by Rob Kalin, Chris Maguire, Haim Schoppik.
Of course, a business connecting handcrafted goods to hipsters started in Brooklyn.
Within two years, Etsy was raking in $26.0 million in revenue from 450,000 registered sellers. The company attracted $3.0 million in funding around that time. (Source: A brief history of Etsy, from 2005 Brooklyn launch to 2015 IPO, Venture Beat, March 5, 2015.)
The firm’s turning point was when it hired Chad Dickerson, a product development expert from Yahoo!. Within three years, Dickerson leapt from Chief Technology Officer to Chief Executive Officer.
He made some high-profile hires and got Etsy’s gross merchandise sales up to $1.93 billion by 2014. But Etsy made a small change to their Terms of Service in 2013 that fundamentally altered the personality of the firm.
They began to allow mass production of products. Rather than honouring their artisanal roots, Dickerson pivoted the firm towards a more corporate ethos.
Sellers didn’t take well to the change, but it was too late by then. Etsy was too big and offered too large a market for them to leave. Now that Amazon is stepping up its game, however, things may change.
The Real Fight: EBAY Stock vs. AMZN Stock
Everyone knows which firm Amazon was targeting, but eBay stock took a bigger hit than Etsy stock.
ETSY was down 2.5% on Thursday October 8th, the same day Amazon announced its new service. Meanwhile, EBAY fell by 6.5% on the same day of trading.
Why was there such a disparate impact?
The language and style of its new Handmade section revealed Amazon’s intention for an all-out assault on Etsy, but investors took it as a bad omen for eBay. To understand why, look to the importance of branding.
Both eBay stockholders and Etsy stockholders depend on revenue from sellers. They are peer-to-peer services that connect buyers and sellers, collecting a small portion of service fees along the way.
By contrast, Amazon’s stock price depends on the company’s ability to act as a central authority. AMZN stock trades at a premium because the company has a history of undercutting its competitors by lowering prices to near unsustainable levels.
The company has its own warehouses and holds inventory in addition to controlling the distribution process. Etsy and eBay are merely platforms, but the distinction between them is the culture of the platform.
Despite adopting a more corporate relationship between itself and sellers, Etsy still presents a bohemian image to customers. It feels more authentic to people looking for artisanal goods.
By contrast, eBay is far more diversified. You can buy a boat on eBay or shop for camping gear. But that range of goods means the company has a weak hold on customers looking for handcrafted goods.
Don’t get me wrong, Amazon will probably emerge as the winner in this fight. I, like most investors, worship at the altar of Jeff Bezos. But Etsy’s bohemian streak may stir enough loyalty in its audience to keep them alive. The same cannot be said for eBay.