Etsy grew GMS (Gross Merchandise Sales) by nearly 18% in the fourth quarter of 2017 to $1 billion, the first quarter to reach the billion-dollar milestone. Etsy CEO Josh Silverman said the marketplace was able to accelerate GMS growth by 4.6% compared with the third quarter of 2017, citing a strong holiday season and several successful launches of new features and tools.
GMS growth was supported by 10.6% year-over-year growth in active sellers and 16.8% year-over-year growth in active buyers, he reported.
Press release follows:
Etsy, Inc., the global marketplace for unique and creative goods, today announced financial results for its fourth quarter and full year ended December 31, 2017.
“Etsy had a good fourth quarter and helped our sellers achieve a meaningful acceleration in sales growth during an important holiday season,” said Josh Silverman, Etsy, Inc. CEO. “We created a more engaging experience for our buyers, and delivered our first-ever billion dollar quarter of GMS, reflecting strong growth across all of our core markets. We believe we’re well positioned heading into 2018 and we’re looking forward to a great year.”
Fourth Quarter 2017 Operational Highlights
GMS was $1.0 billion in the fourth quarter of 2017, up 17.8% compared with 16.7% in the fourth quarter of 2016. This was the first quarter Etsy achieved $1.0 billion in GMS. We accelerated GMS growth by 4.6% compared with the third quarter of 2017, following a strong holiday season and several successful launches of new features and tools. GMS growth was supported by 10.6% year-over-year growth in active sellers and 16.8% year-over-year growth in active buyers.
Year-over-year aggregate conversion rate increased in the fourth quarter, reversing a trend we’ve seen in the past two quarters, despite the growing contribution of mobile web visits, which carries the lowest conversion rate compared to desktop and our mobile buyer app. In the fourth quarter, mobile visits once again grew faster than desktop visits, continuing a trend we’ve seen for multiple quarters. Percent mobile visits was approximately 67% in the fourth quarter of 2017 compared with approximately 65% in the fourth quarter of 2016 and flat compared with the third quarter of 2017. Percent mobile GMS was approximately 52% in the fourth quarter of 2017 compared with approximately 49% in the fourth quarter of 2016, and flat compared with the third quarter of 2017. Mobile web continued to be the largest driver of both overall visit growth and mobile GMS growth in the fourth quarter of 2017. Mobile web visits were approximately 46% of overall visits and mobile app and mobile web GMS each grew significantly faster than desktop GMS in the fourth quarter of 2017.
Percent international GMS was 33% in the fourth quarter of 2017, up from 30% in the fourth quarter of 2016. International GMS growth accelerated to approximately 28% year-over-year and grew faster than overall GMS during the fourth quarter for the seventh consecutive quarter. U.S. GMS growth also accelerated compared to the third quarter of 2017, and was up 13% year-over-year. GMS between international buyers and sellers in the same country grew 43% year-over-year during the fourth quarter demonstrating our continued progress in building and deepening local Etsy communities around the world. Conversion rates increased in each of our six core geographic markets during the fourth quarter, and were particularly strong outside of the U.S. This international success was driven by global product development and launches and other factors, such as local search boost, nudges, Context Specific Search Ranking (“CSR”) and local inventory growth.
Executing on our Four Key Initiatives
In 2017, we began executing on our strategy, which is focused on growing the Etsy.com marketplace in our six core geographies and owning special purchase occasions throughout the year. We believe we can achieve these goals by delivering on our four key initiatives:
– Improving trust and reliability: Since our sellers have relatively unknown brands and unbranded items, we aim to ensure that the Etsy brand is recognized and valued for its trust and reliability throughout the buying experience. Our goal is to bolster trust in the Etsy brand, Etsy sellers, the items available in our marketplace and in the overall Etsy experience. In 2017, we improved buyer confidence with the launch of several new products including a Best Seller badge and a structured return policy for sellers, among others. Enhancements to trust & reliability helped support improvements in GMS growth in the second half of 2017.
– Enhancing search and discovery: With over 50 million items listed on Etsy.com that don’t map to a catalog, we are focused on developing world-class search and discovery technology to surface the right product to the right buyer at the right time. We use artificial intelligence and machine learning to help buyers more easily browse, filter and find the item they desire. To that end, in 2017 we launched Context Specific Search Ranking which leverages transactional and user data to create a more personalized search experience and Guided Search which helps buyers narrow search results through suggested search reformulations. Also, we launched scarcity badges to alert buyers when items are only available in limited quantities, and in 2017, this initiative led to improved conversion rate.
– Building world class marketing capabilities: We need outstanding marketing capabilities to amplify the voice and relevance of our sellers, and to get new and repeat buyers to come to Etsy.com more often. In 2017, approximately 88% of our visits came to Etsy.com through organic channels such as direct, search engine optimization, email and push notifications, and we see an opportunity to optimize these free traffic sources. For example, we are in the process of migrating to a new customer relationship management system to allow us to send more personalized and targeted emails to buyers. Additionally, we continued to invest in ROI-positive paid marketing efforts, primarily Google Product Listing Ads and Search Engine Marketing. Investments in this initiative have led to increased visits on the platform.
– Providing best-in-class seller tools and services: Finally, we seek to provide sellers with best-in-class paid Seller Services and free tools to help them increase visits and conversion. Throughout 2017, we introduced several new tools to help sellers run sales and promotions, offer free shipping, share their items on social media and assess the health and potential of their businesses. Leveraging our new sales and promotion tool, which allows sellers to create sales and run promotions for items in their shop, we held our first-ever site-wide sales over Labor Day and Cyber Monday, which gave buyers a reason to think of Etsy during additional shopping occasions. These products saw strong adoption amongst our sellers and helped them increase their sales.
Fourth Quarter 2017 Financial Highlights
“With accelerating top-line growth and expanding Adjusted EBITDA margin, we are entering 2018 with positive momentum,” said Rachel Glaser, Chief Financial Officer. “We are well-positioned for a strong 2018 and our revenue and Adjusted EBITDA guidance demonstrate that we believe we can sustain and build upon our 2017 progress.”
Total revenue was $136.3 million in the fourth quarter of 2017, up 23.6% year-over-year, driven by growth in both Marketplace and Seller Services revenue. Marketplace revenue grew 15.6%, primarily due to growth in transaction fee revenue and, to a lesser extent, growth in listing fee revenue. Marketplace revenue growth was impacted by the issuance of free listings for promotional activities focused on driving growth in our international markets, including listings granted for the transition of our A Little Market (“ALM”) sellers to Etsy.com. Seller Services revenue grew 33.3% year-over-year, driven primarily by revenue growth in Etsy Payments. Seller Services revenue also benefited from revenue growth from Promoted Listings, which was the fastest growing seller service, and to a lesser extent, Shipping Labels, as well as a modest contribution from Pattern by Etsy. Gross profit for the fourth quarter was $92.0 million, up 25.7% year-over-year, and gross margin was 67.5%, up 110 bps compared with 66.4% in the fourth quarter of 2016. Gross profit grew faster than revenue in the fourth quarter due to lower net fees from our payment processors.
Total operating expenses were $73.8 million in the fourth quarter of 2017, up 5.7% year-over-year, and represented 54.1% of revenue, down from 63.3% of revenue in the fourth quarter of 2016. The decrease in operating expenses as a percent of revenue is primarily due to the decrease in employee-related expenses which reflects the impact of our recent actions to streamline our cost structure.
Net income in the fourth quarter of 2017 was $44.8 million, compared with a $21.4 million net loss in the fourth quarter of 2016. Etsy’s net income in the fourth quarter of 2017 included a tax benefit of $26.5 million primarily due to the impact of the U.S. Tax Cuts and Jobs Act of 2017, $2.2 million in interest expense associated with the build-to-suit lease accounting related to our new headquarters and a foreign exchange gain of $2.2 million, primarily non-cash.
Non-GAAP Adjusted EBITDA in the fourth quarter of 2017 was $34.8 million and grew 127.9% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., non-GAAP Adjusted EBITDA divided by revenue) was 25.6% in the fourth quarter of 2017, up 11.7 percentage points year-over-year. Non-GAAP Adjusted EBITDA performance was driven primarily by revenue growth and increased efficiencies in our operating structure which led to lower employee-related costs.
Net cash provided by operating activities was $35.1 million in the fourth quarter of 2017 compared with $20.1 million in the fourth quarter of 2016. The increase in net cash provided by operating activities for the quarter was mainly driven by revenue growth and lower employee-related costs.
Cash, marketable securities and short-term investments were $340.6 million as of December 31, 2017. Under the stock repurchase program announced in November 2017, Etsy repurchased an aggregate of approximately $10.3 million, or 586,231 shares of its common stock in the fourth quarter of 2017.
See Etsy website for full press release including tables and guidance:
SOURCE: Etsy Press Release