Etsy grew core marketplace GMS (sales) 20% in the fourth quarter of 2019 while growing revenue 28%. Etsy acquired Reverb, a marketplace for musical instruments, in mid-August and released aggregate GMS and revenue as well.
The following is an excerpt of Etsy’s press release announcing earnings.
Etsy, Inc. Reports Fourth Quarter and Full Year 2019 Financial Results
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 fourth quarter and full year ended December 31, 2019.
“Last March we laid out a multi-year growth strategy for Etsy, including an ambitious product, marketing, and technology roadmap, which deepen our Right to Win and serve as the foundation for our five-year growth targets through 2023,” said Josh Silverman, Etsy, Inc. Chief Executive Officer. “We’re off to a great start with our 2019 performance, by staying focused on the fewest things that can make the greatest impact for buyers and sellers, including new initiatives that will further our competitive advantages and meaningfully contribute to future results. All of the work we’ve done in 2019 to improve the customer experience made Etsy.com a great destination for holiday shopping, with consolidated fourth quarter GMS and revenue growing 33% and 35% respectively, and 20% and 28% for the core marketplace.”
“Our strong 2019 performance was driven by investments in marketing, product development, people and the cloud, all while maintaining very healthy adjusted EBITDA margins of approximately 23%,” said Rachel Glaser, Etsy, Inc. Chief Financial Officer. “These valuable strategic investments will enable Etsy to drive further growth and scale our business in 2020 and beyond.”
Fourth Quarter 2019 Etsy Marketplace Operational Results
The following operational highlights include results related to the Etsy.com marketplace and do not include Reverb results:
- Etsy delivered a strong holiday shopping period in the fourth quarter. GMS generated on the five key shopping days from Thanksgiving through Cyber Monday was up 30% compared to the same period last year, driven primarily by product launches and our investment in marketing channels. Among other initiatives, we optimized the purchase flow to create urgency for buyers with high priced items in their cart, launched a listing overlay that nudges U.S. buyers to include additional items to reach the free shipping threshold of $35, and added recommendations after the sale to drive repeat purchases.
- Etsy’s transition to the cloud has played a key role in our product development efforts and our two-year migration plan is now complete. Our continued focus is on exploring ways to optimize efficiencies, improve performance, and leverage machine learning to improve the customer experience, most importantly with search and discovery.
- We continued to make progress providing Etsy sellers with tools and support that enable them to offer free shipping on orders of $35 or more to U.S. buyers, thereby improving marketplace dynamics. As of the end of the year, 65% of U.S. buyer GMS shipped for free, 74% of U.S. listing views were eligible to ship for free and 48% of orders were delivered with free shipping.
- While our Etsy Ads platform delivered positive returns for many sellers and revenue growth for Etsy in the fourth quarter, we will be iterating on our advertising offerings to help sellers more effectively drive traffic to their listings. In the second quarter of 2020, Etsy is planning to launch a new advertising service for Etsy sellers, called Offsite Ads. Etsy will pay the upfront costs to promote Etsy sellers’ listings on multiple internet platforms without any upfront costs for sellers. When a shopper clicks on an online offsite ad featuring a seller’s listing and purchases from their shop, the seller will pay Etsy an advertising fee on that order – only when they make a sale. The Etsy Ads service will be a dedicated on-site advertising program for sellers to promote their listings to shoppers on the Etsy marketplace.
- During the fourth quarter, we continued to increase our investments in mid and upper funnel marketing channels, including running our first television campaign outside of the U.S. and furthering our investments in social channels. We believe our holiday TV campaign delivered the strongest ROI to date and continued to positively move brand metrics on purchase intent and brand awareness.
- Active buyers grew 15.9% year-over-year in the fourth quarter, and active sellers grew 20.0% year-over-year, the latter accelerating for the fifth consecutive quarter.
- We made continued progress driving frequency, as Etsy’s GMS per active buyer on a trailing 12-month basis grew 160 basis points year-over-year and on a 2-year basis increased to over 6%. Habitual buyers, buyers who made 6 or more purchases and spent over $200 in the trailing 12-months, grew 23% in the fourth quarter of 2019, outpacing overall active buyer growth.
- International GMS was 37% of overall GMS, and increased 26% year-over-year on a currency-neutral basis, driven by our marketing efforts and our international domestic trade route, which is GMS generated between a non-U.S. buyer and a non-U.S. seller both in the same country. Within our international domestic trade route, the United Kingdom, one of our six core markets, reached record GMS levels during the quarter.
- GMS from paid channels was 17% of overall GMS in the fourth quarter of 2019, expanding 300 basis points compared to the third quarter of 2019.
Fourth Quarter 2019 Financial Results
The following financial highlights reflect our consolidated financial results and include the financial results of Reverb for the fourth quarter of 2019:
- Total revenue was $270.0 million for the fourth quarter of 2019, which included $13.1 million related to the results of Reverb, up 35.0% year-over-year, driven by growth in both Marketplace and Services revenue.
- Gross profit for the fourth quarter of 2019 was $179.2 million, up 25.4% year-over-year, and gross margin was 66.4%, down 500 basis points compared with 71.4% in the fourth quarter of 2018. The contraction in gross margin was primarily driven by amortization related to our recent acquisition of Reverb, and our consolidated ad platform, Etsy Ads.
- Total operating expenses were $154.1 million in the fourth quarter of 2019, up 35.9% year-over-year. The increase in operating expenses was driven primarily by investments in brand marketing related to our global holiday campaign and decreases in the amount of employee-related costs capitalized in 2019 compared to 2018 for several larger projects.
- Net income for the fourth quarter of 2019 was $31.3 million, down 24.1% year-over-year, with diluted earnings per share of $0.25.
- Non-GAAP Adjusted EBITDA for the fourth quarter of 2019 was $54.6 million. Non-GAAP Adjusted EBITDA margin (i.e., non-GAAP Adjusted EBITDA divided by revenue) was 20.2% in the fourth quarter of 2019, down 550 basis points year-over-year. Adjusted EBITDA performance was driven primarily by revenue growth and increased efficiencies in our operating structure.
- Cash, cash equivalents, short- and long-term investments were $906.6 million as of December 31, 2019. Under the stock repurchase program, Etsy repurchased an aggregate of approximately $22.2 million, or 425,078 shares of its common stock, in the fourth quarter of 2019.
See the Etsy Investor Relations website for the full press release including fourth-quarter highlights, charts, accounting notes, and guidance.
SOURCE: Etsy Press Release