Etsy (ETSY +2.15%) is an e-commerce platform best known for its variety of handcrafted items. Last week the stock soared nearly 9% following some interesting news. Investment firm Elliott Management has reportedly acquired a 13% stake in Etsy. Moreover, one of the fund's partners, Marc Steinberg, joined Etsy's board of directors.
On the surface, this may seem like rather mundane news. However, Elliott Management is unique because it is known for its activist investing reputation. Let's dig into how this relationship could impact Etsy, and what it could spell for investors.
NYSE: ETSY
Key Data Points
What is activist investing?
Activist investing can take many forms. Moreover, while activist investing can at times come across as jarring, it isn't exactly something new. Billionaire hedge fund manager Bill Ackman is widely regarded as one of the most influential activist investors today. Moreover, media and entertainment giant Walt Disney is currently going through its own rigmarole with activist investor Nelson Peltz.
By taking a large enough equity position, activists can earn a spot on a company's board of directors. By doing so, activists typically try to corral other influential executives to support their propositions, which could include things like changes to management, acquisition opportunities, or cost-control suggestions.
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Who is Elliott Management?
Getting a glimpse into the activity of hedge funds and investment firms can be a little tricky given their elusive nature. Thankfully, these funds are required to file a form called a 13-F each quarter. This is a good way for investors to understand where some of the largest, most influential money managers are investing.
According to Elliott Management's most recent 13-F filing, some of the company's larger positions include Triple Flag Precious Metals, Marathon Petroleum, and Pinterest. Pinterest is an interesting holding because it operates in a similar, albeit tangential, realm to that of Etsy. Both of these companies have immense e-commerce applications and are extremely popular among social media users.
When it comes to Elliott Management specifically, the firm often engages in what it perceives to be turnaround opportunities. For example, the company made a notable investment in X (formerly known as Twitter) back in 2020 and also published a letter to AT&T's board in 2019. In each of these scenarios, the investment firm called for management shake-ups and spin-offs of non-core assets.
Should you invest in Etsy stock?
The investment case around Etsy is definitely an interesting one. On the one hand, the company experienced unprecedented growth during the peak of the COVID-19 pandemic. The marketplace certainly became more mainstream as people looked to create a unique work-from-home oasis.
Unfortunately, a challenging macro economy coupled with inconsistent repeat buyers has resulted in waning demand -- causing the stock to crater. On top of that, Etsy also divested some of its acquired properties that did not garner the level of growth it had anticipated. The sluggish performance and seemingly disconnected portfolio of e-commerce marketplaces, which includes music platform Reverb, make for an interesting turnaround play.
However, keep in mind that this is not Etsy's first rodeo as a turnaround story. Back in 2017, Etsy appointed Josh Silverman as its CEO following some drama among the executive leadership and the board. Furthermore, back in December, the company announced that it would be implementing a series of layoffs amid its stalling growth.
Although Etsy has a number of interesting potential catalysts fueled by artificial intelligence, my personal take is that changes need to be made beyond the product and marketplaces. Perhaps the addition of new ideas on the board via Elliott Management will spark the inspiration needed to turn things around at Etsy.
For now, though, the most prudent strategy may be to watch the company's progress from the sidelines and assess if Elliott's presence is making a difference for the better.
