Etsy said it grew core marketplace GMS (sales) 22% in the third quarter of 2019 while growing revenue 28%. Etsy acquired Reverb, a marketplace for musical instruments, in mid-August and included additional information on its performance as well.
The company grew the number of active buyers and sellers in the quarter, the following is a breakdown of buyer and seller counts as of September 30, 2019:
– Core Etsy marketplace # of active sellers: 2.4 million (up 19.3%)
– Core Etsy marketplace # of active buyers: 44.2 million (up 19.1%)
– Number of new buyers on the core Etsy marketplace: 4.2 million
– Reverb # of active sellers: 155,000
– Reverb # of active buyers: 594,000
In a presentation Etsy made available ahead of its earnings call, it said it is “making good progress driving Etsy seller adoption of the “free shipping” guarantee” and shared the following data:
- Listings eligible to ship for free to US as of 9/30/19: 62%
- Listing views of items eligible to ship for free as of 9/30/19: 74%
However, one slide shows, “So far, sellers absorbing more of shipping costs than pre-launch testing indicated…or is warranted.”
It also said it added support for three shipping solutions: Pitney Bowes, ChitChats, and uShip.
Excerpt of Etsy press release follows:
Etsy, Inc., which operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world, today announced financial results for its third quarter ended September 30, 2019.
“During the third quarter we launched several transformative initiatives to serve as the building blocks for long-term, sustainable growth,” said Josh Silverman, Etsy, Inc. Chief Executive Officer. “The core Etsy marketplace continued to perform well, with third quarter GMS and revenue growth of approximately 22% and 28% respectively. Through innovative solutions such as Etsy Ads and our new free shipping initiative, we are continuing to improve the core marketplace for buyers, while enhancing value for sellers and helping them grow. We are just beginning to see the impact of these initiatives, which we believe further our competitive advantages and will have a more meaningful contribution to our results in 2020 and beyond.”
“During the third quarter of 2019 we delivered solid top and bottom line results and generated another $47 million of operating cash flow,” said Rachel Glaser, Etsy, Inc. Chief Financial Officer. “Investments in our core business, significant new initiatives and the acquisition of Reverb are helping establish a great foundation for continued profitable growth.”
Third Quarter 2019 Highlights
The following operational highlights include results related to the Etsy.com marketplace and do not include Reverb results:
- In July, we began providing Etsy.com sellers with tools and support that enable them to offer free shipping on orders of $35 or more to U.S. buyers. In September, we launched a campaign to notify our buyers of the new program, highlighting shops that are offering free shipping on their orders. As of the end of the third quarter, 62% of items on the Etsy marketplace offered free shipping to U.S. buyers and 74% of U.S. listing views were eligible to ship for free.
- We migrated Etsy sellers who previously used Promoted Listings and/or Google Shopping to Etsy Ads in the third quarter. We continue to optimize between channels targeting a return on their ad spend and to-date, we have seen negligible budget churn from sellers.
- As a result of migrating our search efforts to Google Cloud, we made a foundational upgrade to our ranking algorithms, which will enable Etsy to provide more relevant search results to buyers on Etsy.com. In addition, we continued to improve our mobile app, began highlighting items that are similar to items buyers have made a favorite in the past, launched variation photos, and integrated several shipping solutions, all geared to helping improve the overall shopping experience. We also launched a regional sales feature, which allows for sellers to set a country-specific sale, with a focus on their domestic listings.
- During the third quarter, we launched a new national television campaign for Etsy, which features holiday gifting experiences and will be tested, with a localized version, in the United Kingdom as well during the holiday season. Leveraging our learnings from prior campaigns, we will optimize for reach, frequency and return as we head into the busiest shopping period of the year.
- In the third quarter, active buyers and active sellers increased 19.1% and 19.3% year-over-year, respectively. We acquired approximately 4.2 million new buyers in the third quarter.
- For the Etsy marketplace, GMS from paid channels was approximately 14% of overall GMS in the third quarter, contracting approximately 250 basis points compared to the third quarter of 2018, and about 40 basis points compared to last quarter as we resumed our television campaign which drives more organic traffic.
- As we continue to shift our marketing spend up-funnel to drive frequency, organic GMS as a percentage of overall GMS for the Etsy marketplace has expanded from 80% in the fourth quarter of 2018 to 86% in the third quarter.
- Etsy’s GMS per active buyer on a trailing 12-month basis grew for the sixth consecutive quarter and on a 2-year basis increased nearly 4%, evidence of our continued progress improving frequency.
- International GMS grew approximately 31% year over year and was 38% of total GMS. U.S. domestic GMS growth accelerated for the second consecutive quarter to nearly 17%. U.S. buyer GMS, a metric that includes a U.S. buyer who made a purchase from an international seller, grew 21% in the third quarter, reflecting the positive impact our U.S. marketing campaigns have on U.S. buyer demand.
- On August 15, 2019, we completed the acquisition of Reverb, a privately held marketplace for new, used and vintage music gear for approximately $271.4 million in cash, net of cash acquired. From the acquisition date through the end of the third quarter, Reverb generated $76.9 million in GMS. Percent international GMS was approximately 17%. These operational metrics drove $6.0 million in revenue resulting in a take rate of 7.8%. At the end of the third quarter, Reverb active buyers and active sellers totaled 594 thousand and 155 thousand, respectively.
Third Quarter 2019 Consolidated Financial Results
- Total revenue was $197.9 million for the third quarter of 2019, which included $6.0 million related to the results of Reverb, up 31.6% year-over-year, driven by growth in both Marketplace and Services revenue.
- Gross profit for the third quarter of 2019 was $129.0 million, up 24.7% year-over-year, and gross margin was 65.2%, down 360 basis points compared with 68.8% in the third quarter of 2018. The contraction in gross margin was primarily driven by fees related to Etsy Payments, amortization related to our recent acquisition of Reverb, and our consolidated ad platform, Etsy Ads, which we believe is a tailwind to revenue growth and GMS.
- Total operating expenses were $114.8 million in the third quarter of 2019, up 35.5% year-over-year, and represented 58% of revenue. The increase in operating expenses were driven primarily by marketing expense, specifically the investment in our TV campaign. Marketing expense as a percentage of revenue was 25.3% compared to 26.3% in the third quarter of 2018, a contraction year-over-year and sequentially as we gained leverage driving efficiencies in our marketing spend.
- Net income for the third quarter of 2019 was $14.8 million, with diluted earnings per share of $0.12.
- Non-GAAP Adjusted EBITDA for the third quarter of 2019 was $42.1 million and grew 23.6% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., Adjusted EBITDA divided by revenue) was 21.3% in the third quarter of 2019, down 130 basis points year-over-year. Adjusted EBITDA performance was driven primarily by year-over-year revenue growth and cost efficiencies in our operating expenses.
- Cash, cash equivalents, short- and long-term investments were $856.7 million as of September 30, 2019. Under the stock repurchase program approved in November 2018, Etsy repurchased an aggregate of approximately $2.8 million, or 50,721 shares of its common stock in the third quarter of 2019.
- During the third quarter, Etsy completed a convertible debt offering issuing $650.0 million aggregate principal amount of 0.125% Convertible Senior Notes due 2026 (the “2019 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 2019 Notes represented a premium of approximately 47.5% over the price of Etsy’s common stock as of September 18, 2019 (the date the offering closed). In addition, Etsy initiated a concurrent share repurchase of approximately $124.5 million, or nearly 2.1 million shares, and entered into capped call transactions at 150% premium over the price of Etsy’s stock as of September 18, 2019. The capped call transactions are generally expected to reduce potential dilution. The net proceeds of these transactions were approximately $438.7 million after deducting the initial purchaser discount, offering expenses, share repurchase and capped call transaction costs.
See the full press release for charts, additional financial information, and guidance.
SOURCE: Etsy Press Release