Etsy Reports Strong Q3 Earnings, with Significant Gains in Active Buyers and Sellers

Etsy reported its Q3 earnings for the quarter ending September 30, 2017.

For a company that by its own admission has stopped external branding, they are doing a fantastic job increasing revenue and are attracting more active buyers and sellers.

A few highlights from press release:

  • Growth Merchandise Sales (GMS) increased by 13.2% to $766.4 million
  • 52% of GMS was from mobile visits
  • Etsy has 10.8% more active sellers today than same quarter last year
  • Etsy had 16.7% more buyers today than same quarter last year

The company credits improvements to its platforms as the main reasons for the strong quarter.

Here is the Full Press Release (excluding most of the tables) From Etsy

Etsy, Inc., the global marketplace for unique and creative goods, today announced financial results for its third quarter ended September 30, 2017.

“In the third quarter, we executed on our strategic initiatives, accelerated GMS and revenue growth and achieved our highest ever Adjusted EBITDA margin since becoming a publicly-traded company,” said Josh Silverman, Etsy, Inc. CEO.

“We will continue to make progress on our strategy to own ‘special’ shopping occasions by delivering a more engaging experience for our buyers, and providing our sellers with the tools they need to compete. Looking ahead, we believe our sharpened focus will enable us to build on our momentum, support our sellers throughout the holiday season, and advance our new mission to keep commerce human.”

Third Quarter 2017 Operational Highlights

GMS was $766.4 million, up 13.2%, compared with the third quarter of 2016. We accelerated GMS growth by 140 bps compared with the second quarter of 2017, following several successful launches of new features and tools. Growth in GMS was also supported by 10.8% year-over-year growth in active sellers and 16.7% year-over-year growth in active buyers.

Continuing the trend we’ve seen for multiple quarters, mobile visits once again grew faster than desktop visits. Percent mobile visits was approximately 67% compared with approximately 65% in the third quarter of 2016.

Percent mobile GMS was approximately 52% compared with approximately 49% in the third quarter of 2016 and approximately 51% in the second quarter of 2017. Mobile web continued to be the largest driver of both overall visit growth and mobile GMS growth.

Mobile web visits were approximately 47% of overall visits and mobile app and mobile web GMS each grew significantly faster than desktop GMS during the third quarter.

Percent international GMS was approximately 34% in the third quarter of 2017, up from approximately 30% in the third quarter of 2016, and up from approximately 32% in the second quarter of 2017.

Net international GMS growth accelerated to approximately 25% year-over-year and grew faster than overall GMS during the third quarter for the sixth consecutive quarter. GMS between international buyers and sellers in the same country grew 54% year-over-year during the third quarter demonstrating our continued progress in building and deepening local Etsy communities around the world.

Recent Operational Highlights

During the third quarter of 2017, we continued to prioritize faster execution and experiment velocity, which has significantly increased since May 2017.

Our successful experiments and launches have generated GMS in nearly every week since late May and remain focused on our four key initiatives—trust and reliability on, search and discovery, world-class marketing capabilities, and best-in-class seller tools and services. A few of our recent highlights and wins include:

Improving trust & reliability: We launched several new products focused on building buyer confidence and improving the commerce experience on Notable examples include adding a new structured return policy tool that enables sellers to more clearly outline their exchange and return policies and a ‘Best Seller’ badge, which provides buyers with social validation by showcasing the most popular items being purchased in the marketplace.

Enhancing search & discovery: Helping our nearly 32 million buyers around the world to find the right special product at the right time, remains one of our most important priorities and we launched several new tools and enhancements this quarter focused on this goal.

For example, we launched Context Specific Ranking and guided search, which create a more relevant, personalized experience and help buyers find the exact items they are looking for among the more than 45 million listings in the marketplace.

Other notable enhancements this quarter included scarcity badges to indicate when items are available in limited quantities, which create a sense of urgency and nudge buyers along the shopping journey. We believe this type of tool is particularly powerful for Etsy, given the large percentage of our inventory that is unique or special and, therefore, inherently scarce.

Building world-class marketing capabilities: We continued to focus on high ROI marketing and launched a 3-day Etsy-sponsored email promotion at the end of September that rewarded buyers with gift cards following a qualifying purchase.

Early in the fourth quarter, we launched a social media sharing tool that enables sellers to leverage their social networks to drive sales. We believe this launch will help our sellers drive traffic, increase customer retention, and drive awareness for their brands and the Etsy brand.

Providing best-in-class seller tools and services: Our sellers continue to tell us that they want help marketing their businesses so we launched a tool that allows sellers to create sales and run promotions for items in their shops.

This paved the way for our first-ever site-wide sale over Labor Day, which drove GMS growth across the marketplace. We have also further optimized our Promoted Listings algorithms to increase ad relevancy and created new inventory to support our sellers’ demand for more ad inventory.

Third Quarter 2017 Financial Highlights

“Our focused execution, rapid product launch cadence, and expense discipline enabled us to generate our highest Adjusted EBITDA margin as a publicly-traded company,” said Rachel Glaser, Chief Financial Officer. “We are reiterating the 2017 guidance we issued in August of this year and believe we are well positioned to build on our momentum as we head into the holiday season.”

Total revenue was $106.4 million for the third quarter of 2017, up 21.5% year-over-year, driven by growth in both Markets and Seller Services revenue. Markets revenue grew 11.2% year-over-year, driven by growth in transaction fee revenue and, to a lesser extent, growth in listing fee revenue.

Markets revenue growth was impacted by promotional activities focused on driving growth in our international markets, including a program to offer free listings for a limited time to our ALM sellers. Seller Services revenue grew 30.6% year-over-year, driven primarily by revenue growth in Etsy Payments and Promoted Listings, and, to a lesser extent, Shipping Labels and Pattern.

Gross profit for the third quarter of 2017 was $70.0 million, up 20.2% year-over-year and gross margin was 65.8%, down 70 bps compared with 66.5% in the third quarter of 2016 and up 90 bps compared with 64.9% reported in the second quarter of 2017.

Total operating expenses were $62.6 million in the third quarter of 2017, up 12.6% year-over-year. For comparison, in the same quarter last year, operating expenses grew 28.7% year-over-year; the year-over-year deceleration in operating expense growth reflects the impact of our recent actions to streamline our cost structure.

Net income for the third quarter of 2017 was $25.8 million, with diluted earnings per share of $0.21, compared with a net loss of $2.4 million and a net loss per share of $0.02 in the third quarter of 2016.

Etsy’s net income in the third quarter of 2017 included an income tax benefit of $12.6 million, an $8.1 million foreign exchange gain, and $2.4 million in interest expense associated with the build-to-suit lease accounting related to our new headquarters, primarily non-cash.

Non-GAAP Adjusted EBITDA for the third quarter of 2017 was $22.8 million and grew 74.4% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., non-GAAP Adjusted EBITDA divided by revenue) was 21.4%, up 650 bps year-over-year and up 890 bps sequentially compared to the second quarter of 2017.

Non-GAAP Adjusted EBITDA performance was driven primarily by revenue growth and lower employee-related expenses mainly due to the headcount reductions in May and June.

Net cash provided by operating activities was $16.9 million in the third quarter of 2017 compared with $10.3 million in the third quarter of 2016.

The increase in net cash provided by operating activities for the quarter was mainly driven by revenue growth and savings in employee-related and other costs associated with the Actions (as defined in Non-GAAP Financial Measures).

Cash, marketable securities and short-term investments were $310.7 million as of September 30, 2017.

2017 Financial Guidance

We are reiterating 2017 guidance for GMS growth, Revenue growth and Adjusted EBITDA margin.

2017 Guidance

GMS Year-Over-Year Growth


Revenue Year-Over-Year Growth


Adjusted EBITDA Margin


Based on year-to-date growth and our expectations for the fourth quarter, we expect to achieve revenue growth at the high end of our full-year revenue guidance range.

We anticipate that the key factors impacting our GMS and revenue forecast through the balance of 2017 will be:

  • Accelerated testing and deployment of new products and features focused on
  • Visit growth gains and stable conversion rates across mobile and desktop
  • Growth in Seller Services revenue, which we expect will grow faster than both GMS and Markets revenue, and primarily be driven by Etsy Payments and Promoted Listings.

In addition to the key factors impacting GMS and revenue, we anticipate that our Adjusted EBITDA margin will also benefit from:

  • Increased efficiencies in our operating structure, which are expected to reduce our operating expenses by approximately $20 million in 2017 (realized primarily in the third and fourth quarters).
  • These efficiencies are expected to reduce our operating expenses by approximately $35 million on an annualized basis beginning in 2018.

Etsy is not able, at this time, to provide GAAP targets for net income margin for 2017 because of the unreasonable effort of estimating certain non-cash items that are excluded from non-GAAP Adjusted EBITDA margin, including, for example, provision or benefit for income taxes and foreign exchange gain or loss, the effect of which may be significant.

Here is the link to the full release with all financial data

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Editorial Note: This post is from a Company Press Release and may have been modified for clarity.

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