Etsy grew Gross Merchandise Sales (GMS) for sellers by 21.4% in the second quarter (April, May, June) – but it is making more money for itself, growing revenue by 36.8%
Etsy revealed in its Q2 press release on Thursday that it plans to consolidate its ad platform for sellers. “Beginning in the third quarter of 2019, Promoted Listings, our on-site ads platform, and Google Shopping, an off-site marketing tool for Etsy sellers, will be streamlined into one unified ad platform called Etsy Ads where sellers can set a budget and allow Etsy to optimize between channels, targeting a return on their spend.”
Press release follows:
Etsy, Inc. (NASDAQ: ETSY), the global two-sided marketplace for unique and creative goods, today announced financial results for its second quarter ended June 30, 2019.
“Our excellent second quarter growth in revenue and GMS reflects solid execution across our portfolio of product and marketing investments and the strength of our core marketplace,” said Josh Silverman, Etsy, Inc. Chief Executive Officer. “We are making great progress improving our product experience and marketing capabilities, and it is paying off. In addition, we have a number of bold new initiatives which we believe will fuel our growth even further, including enhancing the shipping experience, helping our sellers better market and grow their businesses, and our planned acquisition of Reverb.”
For information about how we define our metrics, see our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
“In the second quarter of 2019 we continued our momentum, posting 37% revenue growth and 43% growth in EBITDA versus prior year,” said Rachel Glaser, Etsy, Inc. Chief Financial Officer. “Our investments in product initiatives and full funnel marketing are having a positive impact on growth in both active buyers and sellers and continued sequential growth in our frequency metrics. We are successfully improving the experience for buyers on Etsy and helping our sellers build successful businesses.”
Second Quarter 2019 Highlights
Product experiment velocity increased to another record high during the second quarter. Our initiatives, aligned with our Right to Win, were focused on highlighting our unique inventory, improving search and discovery, strengthening our human connection, and building a trusted brand. In the second quarter, we made significant strides in search and discovery making the home page more personalized and dynamic allowing buyers to more easily pick up where they left off on their most recent shopping mission. In addition, we continued to improve our mobile app incorporating signals and nudges throughout the app experience to fuel growth on our highest converting device.
As of the end of the second quarter, we migrated a majority of our systems to Google Cloud, including our machine learning efforts, making progress on our two-year migration plan, which we expect to complete in early 2020.
During the second quarter, we launched a new national television campaign which had a positive impact on visits and purchase intent. Our market research indicates that buyers who were exposed to our TV ads were more likely to make a purchase on the site.
GMS from paid channels was 15% of overall GMS in the second quarter, contracting approximately 100 basis points compared to the second quarter of 2018, and nearly 70 basis points compared to last quarter. In the first quarter, we tested incrementality across all marketing channels, which resulted in a shift in our investment mix to higher performing channels in the second quarter. Leveraging our data and insights, some channels were paused indefinitely and we’ve resumed investments in others.
In the second quarter, active buyers and active sellers accelerated to 19.3% and 17.7% year-over-year, respectively.
GMS per active buyer on a trailing 12-month basis delivered five consecutive quarters of positive growth, evidence of our continued progress improving frequency.
International GMS was 38% of overall GMS and increased 37% year-over-year on a currency-neutral basis, another record quarter for international GMS growth. International domestic growth, our fastest growing trade route, accelerated for the third consecutive quarter, on a constant currency basis, driven by our local efforts in our core international markets, including Germany, which continues to benefit from the DaWanda agreement.
During the second quarter we completed the test and design phase to make free shipping a core part of the Etsy shopping experience. In July, we began providing Etsy sellers with tools and support to make it easy for them to guarantee free shipping on orders of $35 or more to U.S. buyers.
We plan to launch a consolidated ad platform for sellers. Beginning in the third quarter of 2019, Promoted Listings, our on-site ads platform, and Google Shopping, an off-site marketing tool for Etsy sellers, will be streamlined into one unified ad platform called Etsy Ads where sellers can set a budget and allow Etsy to optimize between channels, targeting a return on their spend.
On July 21, 2019, Etsy signed a definitive agreement to acquire Reverb, a privately held marketplace for new, used and vintage music gear for $275 million in cash, subject to certain adjustments with respect to cash, debt, working capital, transaction expenses and the value of equity awards to be granted in connection with the transaction. The transaction is expected to close in late third quarter or early fourth quarter of 2019, subject to Hart-Scott-Rodino review and other customary closing conditions. Please refer to the Form 8-K filed on July 22, 2019 for additional details.
Second Quarter 2019 Financial Results
Total revenue was $181.1 million for the second quarter of 2019, up 36.8% year-over-year, driven by growth in both Marketplace and Services revenue.
Gross profit for the second quarter of 2019 was $122.5 million, up 40.8% year-over-year, and gross margin was 67.6%, up 190 basis points compared with 65.7% in the second quarter of 2018. Gross margin in the second quarter of 2019 compared to gross margin last quarter of 68.9% contracted 130 basis points. The contraction in gross margin was primarily impacted by our on-going migration to the cloud, which we believe is a tailwind to our product development efforts.
Total operating expenses were $104.6 million in the second quarter of 2019, up 41.0% year-over-year. The increase in operating expenses was driven primarily by marketing expense, specifically the investment in our TV campaign, and an increase in headcount related to product development. Marketing expense as a percentage of revenue was 25.4% compared to 21.9% in the second quarter of 2018 and 20.9% in the first quarter of 2019.
Net income for the second quarter of 2019 was $18.2 million, with diluted earnings per share of $0.14.
Non-GAAP Adjusted EBITDA for the second quarter of 2019 was $39.7 million and grew 43.4% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., Adjusted EBITDA divided by revenue) was 21.9% in the second quarter of 2019, up 100 basis points year-over-year. Adjusted EBITDA performance was driven primarily by year-over-year revenue growth related to changes in our pricing model in the third quarter of 2018.
Cash, cash equivalents, short- and long-term investments were $659.3 million as of June 30, 2019.
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SOURCE: Etsy Press Release