Etsy grew Gross Merchandise Sales (GMS) by nearly 18% in the first 3 months of 2018. Specifically, Etsy GMS grew 19.8% year-over-year, or 17.6% on a currency-neutral basis.
Etsy saw a 9.4% year-over-year growth in active sellers and 16.9% year-over-year growth in active buyers.
Press release follows:
Etsy, Inc., the global marketplace for unique and creative goods, today announced financial results for its first quarter ended March 31, 2018.
“We are pleased to report that GMS and revenue growth accelerated for the third consecutive quarter in Q1,” said Josh Silverman, Etsy, Inc. CEO. “We believe these results underscore the size of the opportunity ahead for Etsy, as well as the continued momentum we are unlocking from our focused execution. We are proud of the tremendous progress we have made in a short amount of time executing against our four key initiatives, and believe we are well positioned to capitalize on the many opportunities ahead.”
For information about how we define our metrics, see our Annual Report on Form 10-K for the year ended December 31, 2017, except for Marketplace revenue and Services revenue which are described below.
First Quarter 2018 Operational Highlights
GMS was $861.1 million in the first quarter of 2018, up 19.8%, compared with the first quarter of 2017. We accelerated GMS growth by 200 bps compared with the fourth quarter of 2017, marking the third consecutive quarter of sequential acceleration in this metric on an as-reported basis. GMS growth was supported by 9.4% year-over-year growth in active sellers and 16.9% year-over-year growth in active buyers. On a currency-neutral basis (excluding the direct impact of currency translation on GMS from goods sold that are listed in non-U.S. dollar currencies) GMS growth was 17.6% compared with 15.2% in the first quarter of 2017. On a currency-neutral basis, we accelerated GMS growth by 110 bps compared with the fourth quarter of 2017.
Year-over-year aggregate conversion rate growth increased for the second consecutive quarter led by continued performance on mobile web, which typically carries the lowest conversion rate compared to desktop and our mobile buyer app.
Percent mobile GMS was approximately 54% in the first quarter of 2018, up from approximately 51% in the first quarter of 2017 and approximately 52% in the fourth quarter of 2017. We believe this increase was a result of increased mobile traffic, in line with industry trends, and, to a lesser extent, continued improvements in our mobile offerings for Etsy buyers. Percent international GMS was 35% in the first quarter of 2018, up from 32% in the first quarter of 2017 and 33% in the fourth quarter of 2017. International GMS growth was up approximately 30% year-over-year and grew faster than overall GMS during the first quarter, largely due to currency exchange rates, as well as growth in markets where Etsy Payments is not offered, global product work and seller outreach. On a currency-neutral basis, international GMS growth would have been 24%. U.S. GMS growth also accelerated compared to the fourth quarter of 2017, and was up 15% year-over-year.
Recent Operational Highlights
In the first quarter of 2018, we invested resources in foundational work, which addressed three primary areas: technical debt, operational efficiency, and infrastructure imperatives. We streamlined our code base to enable more nimble development, implemented a new help center, and made strides migrating to the cloud. We also dedicated resources to achieve steady wins that have had an immediate impact on our results, including our four key initiatives. First quarter highlights include:
Improving trust & reliability: We launched several product enhancements aimed at bolstering trust on the platform and improving conversion rates. Notable launches include a new iteration of guest checkout on mobile web to improve the commerce experience and the functionality for our buyers.
Enhancing search & discovery: Within search and discovery, we continued to launch new product enhancements and build on prior launches to help our buyers around the world find the right product at the right time. We improved context specific ranking to deliver even better results by ranking more listings related to a specific search query.
Building world-class marketing capabilities: We continued to focus on utilizing our marketing efforts to drive new and existing buyers to Etsy. In April, we launched Targeted Offers to allow our sellers to offer discounts and coupons to buyers who have added items to their cart. We expect this work will continue to help drive traffic to Etsy, increase buyer and seller retention, and drive awareness for the Etsy brand.
Providing best-in-class seller tools and services: In order to reduce the amount of time our sellers spend on administrative tasks, we launched an order management experience to help sellers fulfill orders more accurately and better manage their inventory. In addition, we have enabled sellers to send custom listings from their mobile device, which helps them manage their business on the go. Custom orders are a key differentiator for us and help make the buyer experience special. We have also further optimized Promoted Listings by using context specific ranking to surface more relevant ads.
First Quarter 2018
“Q1 was another strong quarter of both revenue and Adjusted EBITDA growth” said Rachel Glaser, Chief Financial Officer. “As an organization, we exercise a disciplined approach to resource investment, focusing our efforts on initiatives that we believe have highest probability to create long-term growth while continuously striving for operational efficiencies.”
In connection with the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers, we renamed our revenue categories Marketplace and Services revenue. Marketplace revenue represents the fees we charge sellers to list items in the marketplace, the fees we charge for transactions between buyers and sellers, and the use of Etsy Payments by our sellers to process payments. Services revenue, formerly called Seller Services revenue, is derived from the optional services we provide to our sellers, which include Promoted Listings, Etsy Shipping Labels, and Pattern by Etsy. Revenue from Etsy Payments, our payments processing product, formerly included in Services revenue, is now included in Marketplace revenue because Etsy Payments is required to be used by Etsy sellers in the countries where it is available. All numbers presented in this press release reflect this reclassification.
First Quarter 2018 Financial Highlights
Total revenue was $120.9 million for the first quarter of 2018, up 24.8% year-over-year, driven by growth in both Marketplace and Services revenue. Marketplace revenue grew 24.7% year-over-year, driven by growth in Etsy Payments, which continued to benefit from the requirement that sellers in eligible countries adopt the service. During the second quarter of 2018, we will anniversary the Etsy Payments adoption requirement, which has been a substantial driver of year-over-year revenue growth, and therefore, we expect Etsy Payments revenue to trend more in-line with GMS growth in future quarters. Marketplace revenue also benefited from growth in transaction fee revenue and, to a lesser extent, growth in listing fee revenue. Services revenue grew 35.0% year-over-year, driven primarily by revenue growth in Promoted Listings, and, to a lesser extent, Etsy Shipping Labels. Gross profit for the first quarter of 2018 was $79.6 million, up 27.9% year-over-year and gross margin was 65.8%, up 160 basis points compared with 64.2% in the first quarter of 2017.
Total operating expenses were $65.8 million in the first quarter of 2018, up 2.3% year-over-year. For comparison, in the same quarter last year, operating expenses grew 36.4% year-over-year; the year-over-year deceleration in operating expense growth reflects the impact of our recent actions to streamline our cost structure offset by increased spend in digital marketing and professional services.
Net income for the first quarter of 2018 was $13.0 million, with diluted earnings per share of $0.10, compared with a net loss of $0.4 million and a net loss per share of $0.00 in the first quarter of 2017. Etsy’s net income in the first quarter of 2018 included interest expense of $3.8 million, including interest related to our Brooklyn headquarters and our convertible debt offering in March 2018, and a $1.9 million foreign exchange gain, primarily non-cash.
Non-GAAP Adjusted EBITDA for the first quarter of 2018 was $26.4 million and grew 171.8% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., Adjusted EBITDA divided by revenue) was 21.9%, up 1,190 bps year-over-year. 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 $26.4 million in the first quarter of 2018 compared with $3.3 million in the first quarter of 2017. The increase in net cash provided by operating activities for the quarter was mainly driven by revenue growth and lower employee-related costs.
In March 2018, Etsy completed a convertible debt offering issuing $345.0 million aggregate principal amount of 0% Convertible Senior Notes due March 1, 2023 (the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The initial conversion price of the Notes represented a premium of approximately 37.5% over the price of Etsy’s common stock. In addition, Etsy entered into capped call transactions that effectively increase the premium for conversion of the Notes at maturity to 100% and are generally expected to reduce potential dilution. The net proceeds of these transactions were approximately $300.7 million after deducting the initial purchaser discount, offering expenses and capped call transaction costs. The net proceeds include $41.9 million of proceeds immediately used for share repurchase.
Under the stock repurchase program announced in November 2017, Etsy repurchased an aggregate of approximately $68.6 million, or 2,807,393 shares of its common stock in the first quarter of 2018, including 1,588,500 shares repurchased concurrently with the convertible debt offering.
Cash, marketable securities, and short-term investments were $601.4 million as of March 31, 2018.
See the full press release including charts and financial guidance on the Etsy investor relations website.
SOURCE: Etsy Press Release