Why Etsy, Inc. Stock Is Up 24% This Year

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What happened

Shares of crafty online marketplace Etsy, Inc. (NASDAQ: ETSY) have moved higher this year as the stock spiked on interest from activist investors. As of July 19, the stock has gained 24%, according to data from S&P Global Market Intelligence.

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As the chart below shows, you can see the stock dropped on its first-quarter earnings report at the end of February, but then surged when activist investors took a stake in May.

So what 

Etsy has struggled thus far as a publicly traded company as it's been unable to post a profit a profit in spite of a strong brand name and what would seem to be a promising business model as the artisan-focused marketplace collects commissions from sales on its website.

Those problems were on display in its fourth-quarter report when its loss per share expanded from $0.04 to $0.19 despite a 25.4% increase in revenue. As a result, the stock fell 12% the following day.

However, the stock surged 21.3% on May 16 after two activist investors disclosed stakes in the company, saying Etsy should cut corporate expenses and consider selling itself if it couldn't turn a profit. New CEO Josh Sliverman, who took the helm in early May as the company cut 80 corporate jobs, said the company is reviewing "strategic and operational plans to ensure Etsy on the most value- enhancing near-and-long-term opportunities."

In June, Etsy issued another round of layoffs, slashing 140 corporate jobs, or about 15% of the company's workforce, sending shares higher again.

Now what 

The news of the activist investors, which include TPG Group, Dragoneer Investment Group, and Black-and-White Capital, may be the best thing for Etsy stock. The company's corporate culture had clearly become bloated with lavish new offices in Brooklyn's DUMBO neighborhood and employees in charge of things like limiting waste and instilling company values that have essentially no effect on sales growth or the bottom line.

Silverman seems like the right choice for the CEO chair as he's previously served as CEO of online brands like Skype and Evite. Following the recent job cuts, I'd expect Etsy to take steps toward profitability. If it shows it can turn a profit, the stock should continue moving higher.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Etsy. The Motley Fool has a disclosure policy.