Etsy grew sales 20.4% in the third quarter of 2018 (July, August, September), it announced on Tuesday. It grew revenue 41.3%, and raised its full year 2018 guidance.
The much faster growth in revenue compared to sales is not surprising – Etsy raised transaction fees from 3.5% to 5% at the beginning of Q3 – and it changed the fee structure to now include a commission fee on shipping.
That means sellers are paying Etsy more for every sale they make, and some of the money is going toward marketing to bring more buyers to the site.
In June when Etsy announced the fee increase, it said it would increase its marketing budget by 40%. Today, it announced it would kick off a national TV ad campaign on Thursday. (In 2017, Etsy spent $78 million in marketing to bring buyers to the site; it plans to spend over $110 million this year.)
Etsy also announced today that it will host an Investor Day on March 7, 2019 and announced a stock repurchase program.
Press release follows:
Etsy, Inc., the global marketplace for unique and creative goods, today announced financial results for its third quarter ended September 30, 2018.
“Etsy’s growth accelerated again in Q3, on a currency neutral basis, and we achieved several key milestones,” said Josh Silverman, Etsy, Inc. Chief Executive Officer. “We put our new pricing structure to work by increasing investments in marketing and product initiatives to fuel growth. We also completed a major step in our migration to the Cloud, a key foundational investment as we scale for future growth.”
Third Quarter 2018 Highlights
– GMS was $922.5 million in the third quarter of 2018. 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 accelerated to 20.8% from 19.3% in the second quarter of 2018. On an as-reported basis, GMS growth was up 20.4% compared with the third quarter of 2017.
– Year-over-year aggregate conversion rate increased for the fourth consecutive quarter led by strong performance across all three devices: desktop, mobile web, and the mobile app.
– We made changes to our pricing model which enabled us to increase the level of investment in product, marketing, and customer support.
– We fully migrated DaWanda sellers to Etsy’s platform and now redirect all traffic to Etsy.com. As of the end of the quarter, Germany is our second largest international market by domestic activity after the United Kingdom.
– We successfully migrated the Etsy marketplace and our mobile applications to Google Cloud, a significant step in our two-year migration plan.
– We made progress executing against each of our four key initiatives, including:
– Improved landing page experiences, including more recommendations to enhance the entry experience on Etsy;
– Highlighted the personalization and customization features available on so many products and streamlined the purchase flow;
– Enhanced search algorithms to promote items with competitive shipping;
– Transformed our customer support experience which now includes live chat for sellers, dedicated inbound phones, and 24×7 service levels; and
– Invested in new marketing channels such as television.
“Third quarter GMS and revenue increased 20.4% and 41.3% respectively from the prior year, as our financial results demonstrate continued operational execution and business momentum,” said Rachel Glaser, Etsy, Inc. Chief Financial Officer. “We are focused on leverage and return on investment as we have increased our marketing spend in the back-half of 2018.”
Etsy Announces $200 Million Stock Repurchase Program
Etsy’s Board of Directors has approved a stock repurchase program that will enable the Company to repurchase up to $200 million of its common stock. Under the stock repurchase program, Etsy may purchase shares of its common stock through various means, including open market transactions, privately negotiated transactions, tender offers or any combination thereof. In addition, open market repurchases of common stock may be made pursuant to trading plans established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which would permit common stock to be repurchased at a time that Etsy might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions. The number of shares repurchased and the timing of repurchases will depend on a number of factors, including, but not limited to, stock price, trading volume and general market conditions, along with Etsy’s working capital requirements, general business conditions and other factors. The stock repurchase program has no time limit and may be modified, suspended or terminated at any time by the Board of Directors. Repurchases under the stock repurchase program will be funded from Etsy’s existing cash and cash equivalents or future cash flow. As of September 30, 2018, Etsy had cash and cash equivalents of approximately $362.7 million. Etsy had approximately 120.5 million shares of common stock outstanding as of November 2, 2018.
Third Quarter 2018 Financial Results
– Total revenue was $150.4 million for the third quarter of 2018, up 41.3% year-over-year, driven by growth in both Marketplace and Services revenue.
– Gross profit for the third quarter of 2018 was $103.4 million, up 47.7% year-over-year, and gross margin was 68.8%, up 300 basis points compared with 65.8% in the third quarter of 2017.
– Total operating expenses were $84.7 million in the third quarter of 2018, up 35.3% year-over-year. The increase in operating expenses was driven primarily by digital acquisition marketing focused on driving GMS growth.
– Net income for the third quarter of 2018 was $19.9 million, with diluted earnings per share of $0.15 primarily impacted by the non-cash interest expense and amortization related to the Company’s convertible senior notes, and partially offset by a tax benefit due to employee stock-option exercises.
– Non-GAAP Adjusted EBITDA for the third quarter of 2018 was $34.0 million and grew 49.5% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., Adjusted EBITDA divided by revenue) was 22.6%, up 120 bps year-over-year. Adjusted EBITDA performance was driven primarily by revenue growth related to changes in the Company’s pricing model.
– Net cash provided by operating activities was $97.1 million for the nine months ended September 30, 2018 compared with $32.3 million in the prior year. The increase in net cash provided by operating activities for the nine months ended September 30, 2018 was mainly driven by revenue growth.
– Cash, cash equivalents, and short-term investments were $584.1 million as of September 30, 2018.
2018 Financial Guidance
Etsy is raising its 2018 guidance for GMS, revenue growth, and Adjusted EBITDA margin.
For a summary of the key items that we expect to impact our updated guidance, please read our Q3 investor presentation that is available on Etsy’s investor relations website, investors.etsy.com.
Etsy is not able, at this time, to provide GAAP targets for net income margin for 2018 or for the fourth quarter of 2018 because of the unreasonable effort of estimating certain 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.
Etsy to Host Investor Day
Etsy also announced today that it will host an Investor Day on March 7, 2019 at its Brooklyn, NY headquarters. More details, including webcast information, will follow in the coming months.
See link below for full press release including charts.
SOURCE: Etsy Press Release