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A Look Inside The Q4 Earnings Call by Etsy

Etsy had the best quarter in its history for Q4 2017. For the first time the company reported over $1 billion quarter in GMS. This is a YoY GMS increase of 17.8 percent and revenue was also up by 23.6 percent.

For the full year, GMS grew 14.5 percent with revenue up at 20.0 percent. At the end of 2017, the Etsy community grew globally to 33.4 million active buyers and 1.9 active sellers.

In after hours trading, Etsy’s stock shot up about 15 percent on the record breaking quarter.

Note: GMS (Gross Merchandise Sales is roughly the same metric as used by other companies that state GMV – Gross Merchandise Volume).

As always, we present basic financial data for simplicity to our readers to discuss the general state of relevant companies in eCommerce and how it may impact their business.

Those who wish to invest in Etsy can find more information here about their Q4 and full 2017 results.

Etsy Q4 – The Numbers

Net Revenue: $136.268 million (2016: $110,209 million)
Net Income (Non-GAAP): $44.750 million (2016: $21.383 million/loss)
Earnings per Share: $0.37 (2016: $0.19/loss)

Highlights from their Q4 Earnings Call Transcript

  • Etsy estimates that their total market opportunity is over $155 billion in GMS in the top six categories in their core six geographies on their platform.
  • Efforts to unlock this growth focus on four key initiatives: trust and reliability, search and discovery, marketing capabilities and best-in-class tools and services for Etsy sellers.
  • Revenue growth also accelerated to nearly 23.6% and Ety’s adjusted EBITDA margins of 25.6% with the highest they’ve ever reported.
  • Sellers had a great holiday season and Etsy begun to demonstrate that their efforts are bending the curve on GMS growth.
  • The company streamlined its organizational structure and brought new people into vital roles at CFO and CTO.
  • Etsy Trust and Reliability was features throughout the second half of 2017. The company introduced a variety of enhancements including multi-shop checkout and Best Seller badges.
  • Within search and discovery, Etsy focused on helping buyers to find exactly what they want from among the more than 15 million special items in the marketplace. New developments in AI and machine learning will continue to contribute to improve the search experiences.
  • In the fourth quarter, Etsy continued to build on their Context Specific Search ranking, or CSR foundation, by applying its power to Etsy’s market features, which led to conversion rate increases in GMS. The company also created personalized recommendations on the homepage for each buyer and improved recommendations based on items placed in their cart.
  • Marketing improvements showed significant results. During Q4, paid GMS attributable to Etsy’s marketing efforts grew 45% and Etsy had its first ever site wide sales during Labor Day and Cyber Week.
  • The company discussed many of the platform enhancements we featured on our site as they were rolled out. However, specifically they stated since May of 2017, Etsy has launched approximately 350 product enhancements with more than 20% having a measurably positive impact on GMS.
  • The company believes they’re laying the foundation for a better shopping experience and reflect the progress they’ve made in building a culture of excellence.
  • Looking forward, the company expects that many new products and features will deliver steady and reliable improvements to the buyer and seller experience. Several may become bolder events that could move the needle more, but are more experimental and less predictable.
  • Etsy discussed an expansion in structured data (more later below) and how this will improve buyer experiences. Shoppers need to be able to find products from 50 plus million listings (or about 15 million unique products) and that requires more improvement in search and discovery.
  • The company stated they will continue to improve marketing efforts to bring more buyers to the platform and gain more repeat sales.
  • They plan to use sophisticated automated solutions to scale their marketing efforts. This will include personalized and targeted emails and utilize the Etsy community more to curate the shopping experience.
  • Etsy is also working to improve seller insights and and provide sellers with more meaningful data to improve conversion and sales.
  • Additionally, the company will improve shipping and order management tools and offer capabilities for building lasting buyer relationships.
  • While Etsy states it will continue to improve to increase conversion rates, it also stated it already saw success in that area in 2017. Mobile web traffic converts at about half the rate of desktop traffic and during the fourth quarter Etsy saw improvements in desktop and mobile web conversion rate versus prior year.
  • Also, following the launch of multi-shop checkout in early 2017, the number of items sold per transaction grew slightly.
  • For 2017, Etsy GMS (total value of items sold on the marketplace) reached about $3.2 billion of which $1 billion was from international sales. Etsy defines international sales as any transaction where the buyer or seller is not in the U.S.
  • And Etsy provided some interesting cohort data. According to 2013 seller cohort data, 32% of sellers were also still active in 2016 and their average GMS was nearly four times higher than it was 2013. Etsy’s 2014 buyer cohort behaves similarly towards 2013 cohort with 39% of Etsy’s 2014 active buyers remaining active due 2017 compared with 41% for the 2013 cohort and remained active through 2016. In simple terms, a significant number of buyers stick to the platform and keep coming back, that is good news for sellers.
  • Net Revenues do include numbers that are not just marketplace seller fees. Despite marketplace revenue growth accelerating sequentially for the first time since Q2 2016, seller services revenue growth was driven primarily by growth in Etsy payments and Promoted Listings.
  • Promoted Listings was Etsy’s fastest growing seller service and revenue growth accelerated for the third quarter in a row due to improved fixed fee rate and more available inventory on the platform. Approximately 15% of active sellers used Promoted Listings compared to 16% last year.
  • Approximately 50% of active sellers use Etsy payments compared with 46% last year and approximately 85% of Etsy’s GMS was processed through Etsy payments compared with 78% in 2016. During May of 2017, Etsy transitioned nearly all eligible sellers to Etsy payments as the company believes that is the way to transact on the platform.
  • Active sellers grew 11 percent in 2017.
  • Approximately 28% of Etsy active sellers in U.S. and Canada used the Etsy shipping label service compared with 26% last year. The company believes they can improve on this metric.
  • Etsy’s digital marketing spend is primarily on Google Product Listing Ads and search engine marketing and continues to generate a positive ROI based on their attribution model.
  • On promotions and sales, Etsy shared their view they are not a discount site. While some sales make sense, such as holidays or specific other events during the year, they need to stay in an appropriate cadence.
  • Etsy admits that some best practices already used in other parts of the web they haven’t yet adopted to. These are areas they will improve on in 2018 while also considering what will work best on their platform.
  • When analysts pressed for a bit more detail on new seller tools or roadmaps dates, Etsy stayed pretty generic to their opening remarks. Mostly again confirming improving analytics for sellers. Also the company was questioned a bit on marketing but said they will continue to leverage Google Shopping and seller initiated social traffic. There was no mention or indication of a major branding push by Etsy.

The Turnaround and Future

These kind of analysts earnings calls are typically lean toward the financial side and general trends.

Etsy clearly has shown they have turned around the financial ship and have made some improvements for sellers to reach more buyers and increase sales.

For sellers, the most significant part of the earnings call are these quotes from Josh Silverman, CEO of Etsy.

“We also plan to collect more structured data from our sellers in order to provide buyers with the information they need to make a better purchase decision.”

“In 2018, our focus here will remain on leveraging advances and artificial intelligence and machine learning and combining it with our expertise in human-curation in order to create unique discovery experiences that help buyers find exactly what they’re looking for, inspire their imaginations and elevate the browsing experience to make it more intuitive, more fruitful and more fun. We also want to take the complexity out of sifting through millions of special items to help buyers land on that one item that is special for herb.”

More Structured Data is Coming to Etsy. Sellers on other marketplaces that complain about this change and how it may impact their sales as they do not want to take the time to include the necessary structured data in their listings will need to wake up and adapt.

Navigation, Search, and Marketing such as Google Shopping, work on structured data. Fancy long descriptions are a thing of the past and images and structured data are the future of eCommerce.

With 50 million listings and 15 million unique products, Etsy is in no position to go down the catalog or buy box route, but that doesn’t mean search will continue to stay stagnant as the company has to adjust to the realities of eCommerce.

As they stated, some eCommerce best practices are not yet on the platform, and they will consider adding them as those are appropriate for their unique marketplace.

A year ago, Etsy seemed to be floundering, but now it appears there is direction and the financials show the initial changes are working. The company appears to be not just on the road to recovery, but also on the road to sustained success it has never seen before.

Some sellers may not like some of the changes, but for the whole of the company and the majority of sellers, these changes will be beneficial. 2018 is looking very promising for Etsy and its sellers!

Do you have any thoughts about Etsy on what they have accomplished and where they are going? Head over to our Facebook Discussion Group or use the comments section below.

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