Etsy sells Brazil marketplace Elo7

On July 17, 2023, Etsy, Inc. entered into a quota purchase agreement to sell the parent holding company of Elo7 Serviços de Informática S.A. (“Elo7”), its Brazil-based marketplace for handmade and unique items to Enjoei S.A.

Two years ago, Etsy acquired Elo7, “the Etsy of Brazil,” for $217m in an all-cash transaction. This happened amid the pandemic - likely leading Etsy overpaying for an asset with 1.9 million active buyers, 56,000 active sellers, and about 8 million primarily made-to-order items for sale. Etsy clearly believed that it had the internal expertise to grow a capital/asset light double sided marketplace in the most important e-commerce market in Latin America, Brazil.

Etsy had created a brand house that includes Depop, Reverb, and Elo7 which are all asset light marketplaces that are parts of the circular/used goods sector. Reverb enables the buying and selling musical instruments and Depop enables fashion resale. The challenge is that in the past 12 months - Etsy is still the biggest driver of revenues in comparison to Depop, Reverb, and Elo7.

Fast forward to two years, and Etsy has decided to end the experiment and sell Elo7 to a local e-commerce player, Enjoei at a significant loss. Its telling that this transaction is hidden inside Etsy’s SEC filings and that further details will be provided during Etsy’s second-quarter 2023 earnings call.

Etsy is taking the decision now to exit Elo7 as the macroeconomic conditions are not changing anytime soon. Acquiring marketplaces or any e-commerce business is hard, but knowing when to exit and sell is even harder. I view Etsy as one if not the most conservative management teams, so this has been in the background for a while. That second quarter 2023 earnings call for Etsy will be an interesting listen.