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To Get to Its IPO, Etsy Made Its Toughest Decision 17 Months Ago

Etsy seems smart to have made its decision to move beyond handmade goods well before its IPO.

Etsy screengrab

In October 2013, Etsy made the most controversial announcement of its 10-year existence when it said it was going to allow sellers to use manufacturers for the crafts it sells on its marketplace, which was largely built on a foundation of handmade goods.

Now, as it readies for an IPO, the fact that it made that change 17 months ago could be a real advantage.

Many companies make tough choices when they grow up or go public amid pressure to maintain revenue growth. Facebook and Twitter ramped up advertising, for example, despite worries over how it might affect their users.

Etsy’s case was unique since a major part of its mission is to help handmade crafters build big businesses, which has led to its big success. But by making that change almost a year and a half ago, the company has had time to assess the damage and adjust. In an interview with Re/code over the summer, CEO Chad Dickerson said, “There was a concern that the announcement was about opening the floodgates and there would be a surge of faceless factories and the quality of Etsy was going to change.”

That just never happened, he maintained.

Assuming the IPO goes as planned, we’ll be able to tear through the numbers to see if he was right or not. For now, we don’t know what the long-term ramifications are, but we have some numbers that might (or might not!) start painting a picture.

Etsy’s revenue grew 56.4 percent to $195.6 million in 2014, after growing 67.6 percent a year earlier. The number of active sellers grew 26 percent in 2014, down from 29 percent a year earlier. And the number of active buyers on Etsy grew 41 percent last year, down from 51 percent a year earlier.

The growth deceleration in these three categories could indeed show that the company took a hit from the decision. But it also could be a sign the company is moving out of high-growth mode into maturity, given that it has been in business for a decade already. Etsy’s gross profit margin was 62 percent in both 2014 and 2013, down from 67 percent in 2012. Part of that moderation could be due to a rise in marketing costs. Etsy’s marketing as a percentage of revenue was 20 percent in 2014, after coming in at just under 15 percent in 2012.

Either way, Etsy has already taken on its huge hurdle outside of the scrutiny of the public markets. And that timing should be an advantage regardless of the results down the line.

This article originally appeared on Recode.net.

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