Dive Brief:

• In its first earnings report as a public company, Etsy met expectations with Q1 revenue of $58 million, up from $40.5 million year over year.

• But the vintage and artisan marketplace Tuesday reported net losses of $36.6 million ($.84 per share), way up from $500,000 ($.01 per share) a year ago, where analysts had expected break even earnings per share.

• And operating expenses soared 73% over the same time last year, mainly from expenses related to its initial public offering last month. Etsy will continue to have marketing and hiring expenses in Q2, the company said.

Dive Insight:

Investors are abandoning Etsy as it reported a tough Q1 of bigger losses and big spending, all amid reports that a greater percentage of goods on the site are mass-produced knock-offs. 

At the time of its IPO last month, Etsy hadn’t yet posted a profit. But investors gave it a whirl, leading to a healthy debut, because of a belief in its potential. That potential has been seriously eroded by the report of the company’s widespread problems with counterfeit goods, which was an even-worse realization of some people’s fears about the company post-IPO. 

In order for Etsy to recover, it will have to address its counterfeit issue head on, despite the fact that such a move could hurt sales. And if it can successfully do that, Etsy may end up actually recapturing some of its old magic as a marketplace for buyers and sellers with a sincere dedication to high-quality hand-crafted goods.