Analysis: Inside Etsy's Q4 / Full Year 2023 Earnings Call and Seller Outlook
Analysis: Inside Etsy's Q4 / Full Year 2023 Earnings Call and Seller Outlook

Analysis: Inside Etsy’s Q4 / Full Year 2023 Earnings Call and Seller Outlook

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On Wednesday, Etsy reported its fourth-quarter (Q4) and full-year (FY) 2023 financials. Investors were not very excited about Etsy’s report, but the company is profitable and has big plans for 2024.

In many ways, this earnings report and those still to be released are some of the most important ones for ecommerce retailers and marketplace platforms, as they provide a snapshot of a company’s holiday season and full-year financial health.

This combined quarterly and annual report also allows management to take a year-long review of operational successes and challenges moving forward. Unlike Wall Street analysts who look at the business financials and guidance only, my goal is to highlight key points that are important for sellers.

Let’s start with the top numbers from Etsy’s Q4 and FY 2023 report, focusing on numbers that are interesting for online sellers. Remember that Etsy financials include numbers for Etsy.com, Reverb, Depop, and Elo7 (sold in 2023 but still included in yearly numbers).

Etsy Top Numbers

General Merchandise Sales (GMS)

  • Q4 2023 (all marketplaces) $4.0 billion (about even with 2022, technically slightly down by 0.7%)
  • FY 2023 (all marketplaces) $13.1 billion (down 1.2% from 13.3 billion in 2022)
    • Etsy.com $11.6 billion (down from $11.8 billion in 2022)
    • Reverb $942.1 million (slightly down from $942.5 million in 2022)
    • Depop $599.6 million (up from $552 million in 2022)

Note: Etsy did not break out GMS among its three primary marketplaces on a quarterly basis. Learn more about how GMS is calculated from our Glossary here.

International GMS

Comparing domestic vs international GMS, Etsy said that on an FY 2023 basis, 45% of its GMS came from international sales, which is about the same as in 2022, when Etsy reported 44% coming from international marketplaces.

However, Etsy provided an interesting additional detail: During Q4 2023, 47% of its GMS came from international operations.

Mobile GMS

Another breakout number Etsy provided is the share of mobile vs desktop GMS. For FY 2023, the percentage of mobile shoppers increased slightly from 67% in 2022 to 68% in 2023.

Etsy continues to outpace ecommerce peers in mobile. Recent Adobe Analytics data indicated that smartphone sales reached 51.1% during the holiday season, while Etsy has been slowly approaching 70% for the full year.

Actually, the company’s mobile GMS in 2022 and 2023 has been consistent for Q4 and FY, suggesting that buyers are embracing mobile shopping not just during the holiday season (Q4) but the entire year.

Active Buyers

Etsy (all marketplaces) ended 2023 with 96.4 million active buyers, up 1.5% from 2022 when the company reported 95.0 million. Active buyers are defined as users who make at least one purchase in the previous 12 months.

While Etsy did not break out individual numbers for Reverb and Depop, it did report that Etsy.com’s active buyers totaled 92 million, up from 2022, when the company reported 89.4 million.

Active Sellers

The biggest jump Etsy experienced is with active buyers. At the end of 2023, the company reported 9.0 million active sellers versus 2022, when it reported 7.4 million. That’s a staggering increase of 21%.

For Etsy.com only it reported 7 million active sellers in 2023, compared to 5.4 million in 2022, a whopping 29.6% increase.

Revenue and Profits

The last metrics we will highlight are revenues and profit, which show the company’s overall health. Etsy splits revenues into two categories, which include marketplace and services.

Marketplace revenue is from selling-related fees, including payments and offsite ads fees, while services revenues are from Etsy Ads and shipping services it offers sellers.

Q4 2023

  • Revenues (all): $842.3 million (up 4.3% from $807.2 million in Q4 2022)
  • Marketplaces only: $615.7 million (up 2.6% from $600.1 million in Q4 2022)
  • Services only: 226.5 million (up 9.4% from 207 million in Q4 2022)

FY 2023

  • Revenues (all): $2.74 billion (up 7.1% from $2.56 billion in 2022)
  • Marketplaces only: $1.99 billion (up 4.5% from $1.91 billion in 2022)
  • Services only: $751.7 million (up 14.6% from $655.2 million in 2022)

Gross Profits

  • Q4 2023: $586.5 million (up 0.9% from $581.4 million in 2022)
  • FY 2023: $1.91 billion (up 5.4% from $1.82 billion in 2022)

Of course, gross profits are before any expenses related to operations and other financial factors that incur costs.

Since I am trying to keep this analysis simple and focused on numbers interesting to sellers (not investors), I won’t discuss these in detail here.

You can find them in the Etsy Q4 FY 2023 press releaseĀ here.

Net Income (Loss)

For Q4 2023, Etsy reported a Net income of $83.2 million, down from 2022, when the company reported $109.5 million.

At the end of 2022, the company reported a Net loss of $694.2 million, but in 2023, the bottom line looks positive again as Etsy reported an FY 2023 Net income of $307.5 million.

Last year, Etsy explained the full-year loss as a goodwill impairment charge as it wrote off $1 billion in goodwill value from Depop and Elo7.

In the simplest terms, this means that Etsy paid too much for those companies when it acquired them, assuming they would grow faster than expected. Therefore, it had to adjust the value of the Depop and Elo7 assets on its balance sheet, resulting in a net loss for 2022.

Cash on Hand

Etsy reported having $914.3 million in cash, cash equivalents, and restricted cash at the end of Q4 and the full year 2023. This is slightly down from the previous year when it had $926.6 million.

Deep Dive

I will admit this is a bit really deep dive, one of the longest ones I have written about an earning call, but I think there was a lot in this call worth talking about.

Financial results are typically discussed in an earnings call to give Wall Street analysts some color (background) on the numbers during a Q&A session.

Frequently, company executives will offer nuggets of information that are interesting to sellers. I think this one had many such “nuggets.”

The three primary ones that stood out were:

  • Gift Mode
  • Loyalty Program
  • Onboarding Fee

The following quotes are from Joshua G. Silverman, CEO, President & Director, Etsy, Inc., and Rachel C. Glaser, CFO, Etsy, Inc., who offered insights during this earnings call to participating Wall Street analysts. I attributed them respectively.

Etsy’s New Gift Mode

I have seen numerous concerns voiced by sellers about Etsy’s new Gift Mode about how it may benefit them.

Josh Silverman provided interesting data on why they believe Etsy’s Gift Mode has excellent potential for the company and its sellers. He offered information from internal data and analysis based on U.S. consumers.

  • 2/3 of Americans struggle to find the perfect present, with 71% feeling anxious about gift shopping in the past year.
  • 45% purchase gifts for personal occasions such as birthdays, births, and weddings.
  • Another 45% of gifting happens for holidays, including seasonal holidays (i.e., Christmas, Easter, Hanukkah, etc.) and holidays such as Valentine’s Day, Mother’s and Father’s Day, etc.
  • The remaining 10% are “just because gifting” occasions, such as for a loved one or sending a thoughtful item to a sick relative.
  • In total, U.S. consumers spend, on average, $1,600 a year on gifts.
  • Etsy’s buyers spend only about 2% of that, about $38 on gifts.
  • Only about 10% of shoppers consider Etsy the place to shop for gifts.
  • Etsy estimates that only 43 million of Etsy buyers worldwide purchased a gift from the marketplace in the previous year. This implies that over half of its active buyers did not buy gifts on Etsy.
  • The company estimates gifting is about a $200 billion market in the U.S. alone.
  • Etsy believes its market share (in GMS terms) is about 1%. Thus, moving up to 2% would be a $2 billion growth opportunity for sellers.

Silverman is very excited about Gift Mode. He said, “It’s a whole new shopping experience where gifters simply enter a few quick details about the person they’re shopping for, and we use the power of artificial intelligence and machine learning to match them with unique gifts from Etsy sellers.

“Creating a separate experience helps us know immediately if you’re shopping for yourself or someone else, hugely beneficial information to help our search engines solve for your needs.

“Within Gift Mode, we’ve identified more than 200 recipient personas, everything from rock climber to the crossword genius to the sandwich specialist.”

Etsy is Working on a Loyalty Program

Silverman revealed that Etsy is “in (the) early stages of planning a loyalty program, which is designed to drive consideration among loyal users, more value, more on quality and more on reliability.”

He added, “we pay a lot of attention to loyalty economics in a lot of places,” and Silverman is using the experience from his Amex days to evaluate different schemes, where he “had a chance to study a lot of loyalty programs.”

When building one for Etsy, the company is focusing on driving “more return” and “more consideration” for the company and its sellers.

“It’s got to have both rational and emotional benefits. It can’t be just rational,” and “the goal is to get people to consider Etsy more often.”

The goal is to commit to a loyalty program that “we think can get them to prioritize Etsy” and “stop by Etsy and see if they have something to offer.”

While he discussed the loyalty program, he reiterated that “we don’t have anything to announce yet.”

Etsy’s New Onboarding Fee

During Rachel Glaser’s opening remarks, she confirmed that the company is strengthening its new shop onboarding process, “including introducing a seller onboarding fee.”

Later in the call, both Glaser and Silverman expanded on this fee, which is now in effect. The company now charges $15 to create a shop on Etsy as a “friendly friction” fee to create “a little speed bump.”

Glaser explained this will help with bad actors on the site as it will provide a pause for new sellers that they can’t just create a listing for $0.20 with some product.

Silverman said the fee will ensure “it’s really secure to become a seller on Etsy” and “that’s good for all of the sellers and the buyers on Etsy.”

Ultimately, he added, “[i]f it’s not worth $15 to create a shop on Etsy, then maybe you’re not committed enough to likely succeed on Etsy.”

From a financial point of view, Silverman explained that this will not be “a huge revenue driver” for the company, and “the revenue in that is going to be relatively small.”

According to some internet forums, some Etsy sellers have received a survey discussing potential further adjustments to the selling fee structure. This suggests the company is evaluating a shop subscription model with different levels and fee structures per level, similar to eBay Store, for example.

In the earnings call, neither Silverman nor Glaser commented about such a change being under consideration, but it could make sense to right-size its seller community. See some of my comments in the ‘My View” section at the end of this post.

Additional Etsy Earnings Call Highlights

Now, I will get into additional topics that both Josh Silverman and Rachel Glaser covered during the earnings call.

In his opening remarks, Silverman said, “We had a strong finish to 2023 in the core Etsy marketplace as well as at our subsidiaries, which collectively brought Q4 in a bit better than expected.”

“The Etsy marketplace performed well during the holiday season with our best ever Cyber 5 GMS, up about 4% year-over-year. Both Cyber Monday and Gifting Tuesday set new records.

“By any measure, Etsy starts 2024 a much more meaningful ecommerce company than we were just a few years ago. We’ve doubled our buyer base, which has now grown on a year-over-year basis for 4 consecutive quarters. And buyers on average, are still shopping more frequently and spending much more on Etsy now than they were before the pandemic.

“We all know that ecommerce is a massive business, still taking share from traditional retail. We estimate that the TAM [Total Addressable Market] in our core geographies and categories is $500 billion, just online with our market share sitting at just about 2%.

“Most other players are competing head-to-head to sell the exact same merchandise focused on selling it $0.02 cheaper or shipping it 2 hours faster.

“But that’s just not Etsy.

“[we] largely continued to gain share throughout 2023 when compared to our pure-play competitors in most of our top categories.

“Our buyers worry about the post-purchase experience. And because of that, the number of times buyers purchased from Etsy per year, as well as what they spend with us, are both still much lower than for some of our peers.

“[W]e’ve got a portfolio of compelling initiatives lined up designed to move the needle on consideration and frequency.

“We’ll do a lot more on the value and the reliability front, for example, with innovation planned to improve the predictability of shipping costs for both buyers and sellers as well as work to improve shipping timeliness, for example, shortening our estimated delivery dates this year by at least 2 days.”

In response to a question from an analyst, Silverman added that in today’s macroeconomic environment, ecommerce platforms “gaining share are Amazon, Walmart, Temu, and SHEIN, and almost everyone else is losing share.”

However, “in terms of volume,” these companies are “taking volume in ecommerce,” because “they sell essentials.”

Silverman believes Etsy is outpacing other competitors in that environment as the company “added 8 million new buyers,” and “spent $3.6 billion on the Etsy marketplace in the fourth quarter alone.”

He highlighted that “92 million people, in fact, are opening their wallet to come and buy something on Etsy even in this environment” and spending more than 20% today than buyers were pre-pandemic.

Silverman expanded that because Etsy doesn’t focus on essential products, they are growing slower than ecommerce companies such as Amazon or Walmart, which offer those types of products and rely on deep discounting.

“When I imagine, going forward, does everyone always want the cheapest version of any given product? No, absolutely not. I think that that trend, this is a cycle, we’re in a moment in the cycle, and I think we’ll move to better moments in the cycle, hopefully, soon.”

Addressing a common complaint among sellers that the platform hosts too many non-handmade products. Silverman said, “it’s a very big focus… to make sure that mass-produced items are not visible on the site.”

“It’s bad for the brand,” he added, and “it’s not helpful for our sellers in terms of price competition.” Furthermore, Silverman claims that since the last time they provided an update on this situation, he believes “it was cut in half” and continues to make more progress.

In Glaser’s opening remarks, she acknowledged that Etsy’s Q4 was off to a slow start.

She said, “Following a challenging October, Etsy’s marketplace’s year-over-year GMS trend line improved in November and December due to the solid holiday performance Josh described earlier.

“We had a nice end to the quarter with better than expected GMS growth across all of our brands, enabling us to come in slightly above our mid-December revised guidance for GMS in revenue.”

Providing some additional color to full-year financials, Glaser added that “marketplace revenue grew 2.6% due to higher payments revenue related to a mix shift of more international transactions that yield higher fees, growth in subsidiary payments fees, and higher offsite ads revenue.”

On the services revenue, she said that Etsy Ads was a primary driver of growth in 2023, “increasing 9.4% year-over-year.”

Overall, Glaser confirmed what many sellers already know. Etsy Ads, its April 2022 transaction fee increase, “as well as payment fee expansion,” added to the company’s additional revenue in FY 2023.

She also addressed the cost savings the company is making, which include the layoffs reported in December.

By reducing their internal projections for total 2024 operating costs by over $90 million, the company can use these savings to “reinvest back into the all-important growth investments we plan to make this year, including the modest addition of critical hires.”

Later in the call, she added that “the guiding principle of what we are about was to reprioritize and realign our teams” to work on projects “driving the highest possible impact.”

“We’re very lean. Etsy alone, just Etsy, is only about 1,800 people.

Discussing product development, Glaser said that during Q4 2023, product development costs increased to $117 million, up 4% year-over-year.

“Etsy marketplace product development investments delivered approximately $1.5 billion in incremental annualized GMS, a significant increase from last year,” she explained.

While the Super Bowl wasn’t included in this quarter’s financials, Glaser commented that “marketing spend increased 7% year-over-year to $261 million” in Q4 2023.

She highlighted that Etsy has been focusing on brand awareness, stating that “brand spending increased 24% year-over-year in the fourth quarter.”

Another interesting point Glaser mentioned is that Etsy continues to see a softness in the “Home & Living” category while acknowledging that consumer pressure on discretionary spending and deep discounting in retail have been challenging for sellers and the marketplace.

In response to an analyst’s question, she admitted that “January was a little bumpy,” but they feel they are heading in the right direction with their marketing campaigns to reach their goals for the quarter.

Glaser further expanded that “at Christmas time, people get a lot of gift cards. And today, Etsy doesn’t have a gift card program.”

In January, these consumers “go into retail and they spend their gift cards at places like Walmart and Amazon.” In addition, “they are doing a lot of returns when they’re going physically into the stores.”

Furthermore, she added that in January, “Big-box stores are doing all their clearance right now, so things are continuing to be at deep, deep discounts.

“Those are three things that in, the early part of this year, Etsy really wasn’t in the game on those three areas and, I think, affected our January’s GMS to some extent.”

Glaser also provided details on active buyer numbers, saying, “U.S. active buyer trends continue to improve. International buyer growth remained strong, and we had 6% growth in buyers who identify as male.

“We added over 8 million Etsy marketplace new buyers in the fourth quarter, up over 40% in the fourth quarter of 2019, and we reactivated nearly 10 million lapse buyers, a record number, up 13% year-over-year and up 122% from 2019.”

In addition, she said, “habitual buyer trends remained stable in the quarter with over 7 million of these loyal buyers at the end of the quarter, largely in line with the prior 2 quarters. Our number of repeat buyers continue to grow a healthy 4% year-over-year to 37 million.”

Previously, Etsy defined ‘habitual buyers” as buyers who make six or more purchases and spent $200 or more in the past 12 months.

While active buyer numbers increased slightly, Glaser said that GMS per active buyer “declined 4% year-over-year to $126 in the fourth quarter yet remains 22% higher than the fourth quarter of 2019.”

She discussed the Super Bowl ad, stating that “you saw us do a very large, first time ever, big-game [Super Bowl] television ad” this quarter.

The commercial will continue to “run through the rest of quarters,” and it will take “something like 7 to 11 views to actually create that stickiness of an ad.”

In response to a question about Etsy’s overall marketing strategy, Glaser said the company is seeking more opportunities to generate traffic and “it would be great to get another Google PLA [Product Listing Ad] channel” that works as well as Google.

This is also where Etsy is doing more of its “experimental marketing spend to see how we can optimize to get those channels to be ROI [Return on Investment] positive as well,” Glaser said.

She also admitted that Etsy is “less likely” to accept a “drop the ROI threshold and accept a negative return as they continue to adjust their marketing strategy.

My View

This earnings call had a lot of information to digest, more than many others.

One complaint I frequently read on seller forums is about slowing sales, and the company seems to have become somewhat of a victim of its success.

Among major marketplaces, Etsy was able to exit the pandemic in much better shape, keeping many of the buyers gained on the platform, no small feat for a platform that doesn’t focus on essential products.

The company has also been investing in brand advertising, expanding its brand awareness among buyers and potential sellers.

In addition, it has had a low barrier of entry for selling on Etsy by only charging a 20-cent inserting fee, no subscription requirement, no start-up fee, nothing.

With such an extremely low barrier of entry, it’s no wonder that in 2023 alone, Etsy.com added 1.6 million new sellers, jumping from 5.4 million in 2022 to 7 million in 2023.

Considering that Etsy’s GMS is now effectively flat due to re-adjusted consumer shopping trends after the pandemic and macroeconomic challenges from inflation causing consumers to reduce spending on non-essential products, it will impact every seller’s opportunity among what has become a fixed source of gross sales (GMS).

Without stating it this way, the company is responding to this problem by introducing an onboarding fee and stepping up enforcement of existing selling rules.

Its crackdown on mass-produced products and an increased effort to eliminate listings that potentially violate copyrights and trademarks (IP) will likely reduce the total listings on the site.

Unfortunately, some sellers have reported that their long-standing listings were removed by Etsy, with some being able to get them back up on the marketplace but others failing to do so.

My gut feeling is that Etsy removed many offending listings (IP or against selling rules). But without evaluating individual listings, I believe some sellers were caught up in automated systems that were misidentified.

Some sellers could get them back online, while others didn’t. Is it fair? Not at all!

As much as Etsy’s actions are for the benefit of the marketplace and most sellers long-term, they should provide better customer service for sellers, especially those with a long history on the platform, to offer a faster and more transparent counterclaim solution.

Reading between the lines, I believe Etsy’s management knows the massive growth in active sellers is hurting on a per-seller basis, and that is not sustainable without adding corresponding GMS growth, which seems unlikely in the short term due to macroeconomics.

Looking at sales growth opportunities, the introduction of Gift Mode seems to make a lot of sense. As is valid with any new initiative, the devil will be in the details and implementation.

It’s too early to say if it will work, but Etsy’s macro numbers suggest many growth opportunities in that space.

I think sellers should look at their product mix to see if they can take advantage of this new program by tweaking their product mix, design, and production ability.

The Super Bowl ad garnered interesting feedback on Etsy Seller forums, including many who thought it was wasteful.

As I mentioned in my previous analysis of the ad, brand advertising is not a foray that small businesses usually engage in.

In my view, the company’s efforts in that strategic marketing effort have been successful, but maybe too successful when it comes to new sellers that joined the platform.

Even so, branding campaigns aim to attract buyers; the fact they are elevating the brand also brings more opportunist sellers.

Many have good intentions, but others have less so. Therefore, the softness in sales that some long-time sellers complain about may result from diluting sales among a more expansive seller base.

The $15 onboarding fee may help reduce flooding the platform with more sellers that offer little or no value to the overall marketplace.

Future ideas under consideration, such as a subscription model for Etsy Shops, could also help eliminate low-volume sellers.

I realize that many sellers look at these as cash grabs. Still, they can also right-size the seller community, focusing on those sellers that provide unique items, handmade products, and excellent customer service.

The trick for Etsy will be how to eliminate some of these frivolous sellers without hurting the good sellers and impacting the marketplace GMS.

Ecommerce is an always-evolving industry. From year to year, new trends and strategies will require sellers to adjust their promotional and listing strategies to attract more buyers.

One area that I found fascinating is that Etsy is outpacing ecommerce in mobile shopping by a mile. Have you looked at your listing on your smartphone lately?

With nearly 70 percent of shoppers using Etsy on a mobile device, that is where you need to focus on providing the best possible shopping experience to improve conversion.

Etsy, as a marketplace, has to lead in implementing and nudging sellers to profit from changes in ecommerce consumer trends. Some will anger sellers because they will require rethinking; others who see the opportunities in new initiatives can profit from them.

Yes, some may bring new fees or increases in selling fees (i.e., ad expenditures), but if the company is building value into its marketplace, that money will be well spent for the good of all sellers who choose to take advantage of the investments Etsy is making to drive more traffic to the platform.

I firmly believe that many sellers do not realize the costs that go into promoting and running a marketplace. They see fee adjustments or new initiatives only as a means for the marketplace to make more money.

Of course, Etsy needs to exercise good financial strategies for shareholders to profit from their investments. Yet, they must adjust their business strategies to match the current macroeconomic environment while considering the viability or health of the marketplace for all users.

In that regard, I strongly believe Etsy is at a critical point where it needs to address “growing pains” from the rapid rise in sales during the height of the pandemic. Frankly, not all will or can be in the best interest of all sellers.

This earnings call gave me a lot of belief that they are addressing critical issues and evaluating what is best for the long-term success of the platform, which is good for buyers and sellers alike.

If some sellers no longer feel that Etsy provides the value, revenue, or profit they expect, that is probably okay with them, as there are other sellers who will be able to step in. Reducing some duplicity among same or similar items offered is not a bad thing.

Yet, I will caution that Etsy must take seller customer service a bit more seriously – no mention really about that in this earnings call – and it must continue to emphasize removing more mass-produced goods and IP theft first.

Etsy should be about quality, not quantity, and if some sellers leave because Etsy is enforcing rules, that is okay; it will give those who put in the proper effort to run a professional shop more of the GMS pie Etsy offers.

To read the full transcript from the Etsy earnings call, click here.

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