Etsy is doing a better job monetizing its marketplace, seeing greater gains than sellers in the second quarter: while Gross Merchandise Sales (the value of goods sellers sold on the site) grew 25%, Etsy grew its own revenue by 44%.
Some of the biggest takeaways from its report on Q2 performance (the 3-month period from April – June) is around marketing – including the fact that the company will spend more in marketing in the 3rd quarter.
Etsy attributed the growth in Gross Merchandise Sales (to $546.2 million) to its growth in active sellers and active buyers. It ended the second quarter with 1.5 million active sellers (up 24.6% year-over-year) and 21.7 million active buyers (up 31.6% year-over-year), who in the first 6 months of 2015 drove more than $1 billion in GMS. An analyst on the earnings call noted a slower growth rate in new buyers.
How Etsy Earned Its Revenue
Total revenue was $61.4 million, up 44.4% year-over-year, driven by growth in both Marketplace and Seller Services revenue.
Marketplace revenue grew 23%, primarily due to growth in transaction fee revenue and, to a lesser extent, growth in listing fee revenue.
Seller Services revenue grew 79.5% year-over-year, primarily due to growth in revenue from Promoted Listings, which continued to benefit from the re-launch of the product at the end of the third quarter of 2014. Seller Services revenue also benefited from growth in revenue from Direct Checkout and Shipping Labels.
Asked about the breakdown between Promoted Listings, Direct Checkout, and Shipping Labels, Salen said they aren’t breaking down the information, but said Shipping Labels is the smallest, while Direct Checkout and Promoted Listings are very similar in terms of their contribution to overall Seller Services revenue.
How Etsy Markets the Site
Etsy’s Chief Financial Officer Kristina Salen said the company will spend more in absolute dollars on marketing in the 3rd quarter compared with both the second quarter of 2015 and the third quarter of 2014 – presumably good news for sellers if it results in increased traffic to the site, though it’s a small budget to begin with.
Etsy’s digital marketing spend will continue to be focused on search engine marketing, primarily Google Product Listing Ads. She revealed that Etsy had spent very little on marketing – “prior to 2014, we hardly marketed at all,” she said. “Indeed the percentage that we spent on marketing as a percent of revenue was in the low teens. Beginning in 2014, we started to amplify that.”
And, Salen said, “even today, roughly 90% of our traffic comes to us directly from organic sources,” calling it a “high class problem.”
The gory details: Marketing expenses in the second quarter totaled $15.5 million, up 77.3%, representing 25% of total revenue versus 21% last year and 21% in the last quarter. “The increase in marketing expenses continues to be driven primarily by increased spending on Google Product Listing Ads and on higher employee-related expenses,” she said.
Despite the good growth figures, Etsy experienced a net loss of $6.4 million for the quarter compared with a $3.2 million net loss in the second quarter of 2014 and a $36.6 million net loss in the first quarter of 2015.
Etsy also talked about the importance of mobile, and it noted the ways the strong dollar negatively impacted its numbers.
If you’re interested in reading a transcript of the call, you can find it on SeekingAlpha.
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