(Bloomberg)—Etsy Inc. replaced its chief executive officer and said it would eliminate 8% of its workforce as it copes with slowing sales growth.
The artisan craft marketplace named director Josh Silverman CEO, replacing Chad Dickerson, effective Wednesday. Dickerson, who led the company for six years, will also step down as chairman, to be replaced by Union Square Ventures co-founder Fred Wilson, a longtime investor in the company.
Etsy also said chief technology officer John Allspaw will depart the company. Mike Brittain, vice president of engineering, was named interim CTO. Last month, the company named Rachel Glaser as its new chief financial officer, replacing Kristina Salen, whose exit was announced in November.
To account for the changes, Etsy also suspended providing guidance until August, when it reports the results for the second quarter.
“We believe it may take longer than a quarter for new strategic direction to take hold,” Darren Aftahi, an analyst at Roth Capital Partners, wrote in a note Wednesday. “As such, we have reduced our estimates.” He also downgraded the stock to hold and lowered the price target to $10.25, which represents a 10% discount to Tuesday’s closing price before results were reported.
Brooklyn, N.Y.-based Etsy, No. 22 in the just-released Internet Retailer 2017 Top 500, also reported first-quarter revenue of $96.9 million on Tuesday, missing analysts’ average estimates. Though sales gained 18%, it was the company’s fourth straight period of slowing growth. The stock fell as much as 13% to $9.90 Wednesday in New York. It was the biggest decline since March.
Hedge fund Black-and-White Capital LP disclosed that it held a 2% stake in Etsy earlier Tuesday and said it’s urging the company to re-accelerate revenue growth and reduce bloated operating costs. Etsy, which has faced a slowdown in the number of new sellers and buyers added to its platform and the amount of transactions flowing through its marketplace, said in the statement it plans to eliminate 80 jobs.
Silverman sidestepped a question on a conference call Tuesday about why he thinks Etsy should stay independent rather than sell itself. There’s a “tremendous opportunity for Etsy it’s only begun to tap and a very bright future,” he said.
As CEO, he said he’ll be focused on driving more traffic to the marketplace, getting visitors to actually spend money and increasing loyalty to Etsy. The company traditionally has spent very little on marketing, so there are opportunities to pay for more users, he said.
Etsy has increasingly focused on pushing additional services to its sellers to generate revenue, as the total value of items sold through the platform is expected to decline. Seller Services, which includes products like shipping labels and a payments processor, now makes up more than 55% of total revenue.
Even though these services have bolstered Etsy’s sales, in the long term, the company’s prospects are still highly dependent on persuading buyers to keep spending money on its sites.
“There are a lot of irons in the fire in terms of products and initiatives that they’re going after — they’re trying to build new revenue streams when the vision is yet to be executed against on the core,” said James Cakmak, an analyst at Monness Crespi Hardt & Co. “When you’re a niche destination in the world of Amazon, scale does matter.”
In recent years, Etsy has been spending heavily to improve the user experience on its website, mobile application and search features, even buying an artificial intelligence startup to help those efforts. Product development expenses rose 48% in the first quarter. While the company said it cut some costs starting late last year, operating expenses still jumped 36% from the year-earlier period.
The company expects to incur severance charges and other costs of $4.5 million to $6 million related to the job cuts, which will be recognized through the end of 2017. Since the fourth quarter of 2015, Etsy’s workforce had swelled by 30%, ending March at 1,062.Favorite