Etsy saw third-quarter 2020 GMS (value of sales on its marketplace) grow 119% year over year. An excerpt of the company press release follows with a link to the full release below.
Etsy, Inc. Reports Third Quarter 2020 Financial Results
Reports Consolidated Year-Over-Year GMS Growth of 119%; Revenue Growth of 128%
Brooklyn, NY – October 28, 2020 – Etsy, Inc. (NASDAQ: ETSY), 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, 2020.
“We delivered very strong results during the third quarter, with consolidated GMS and revenue growth up 119% and 128% respectively, evidence of our focused execution, engagement with our buyers and sellers, and our strong brand, underpinned by the unique inventory in our marketplace,” said Josh Silverman, Etsy, Inc. Chief Executive Officer.
“Consumer shopping habits have been greatly influenced by the events of 2020, and Etsy truly stands for something different. We’ve been able to sustain growth by driving retention and frequency of our existing buyers as well as becoming an important shopping destination for new buyers. While early, our incremental investments in product and marketing – specifically focused on search and frequency – are driving improvements in the customer experience. We are proud of our momentum, built on the strength of our business model and with the support of our engaged and focused team.”
“2020 demonstrates the scalability and value of our marketplace business model,” said Rachel Glaser, Etsy, Inc. Chief Financial Officer. “We have a very disciplined approach to our investments with a goal to deliver profitable long-term growth. Our investments in marketing have contributed to encouraging progress in buyer retention and frequency which will serve as a foundation for the future. Etsy is uniquely positioned to leverage our strong balance sheet, dynamic business model, and solid fundamentals to capitalize on our large addressable market.”
Third Quarter 2020 Highlights
Select highlights of our third quarter operating performance and business initiatives are outlined below:
- Of the 138 million all time buyers on the Etsy marketplace, approximately 50% have now purchased at least once in the last year, with approximately 69 million active buyers in the third quarter. In addition, the Etsy marketplace saw an influx of 14.8 million new buyers and reactivated buyers during the third quarter – the latter being those who haven’t purchased in a year or more. We have implemented various strategies to engage and target new and existing buyers on and off-site, with personalized and consistent messaging across many channels, driving repeat visitation.
- The majority of Etsy’s GMS is driven by existing buyers, and we have experienced a significant change in buyer cohorts in terms of the frequency with which they shop and the amount they are spending on Etsy. In terms of third quarter 2020 GMS per buyer, when using data for our 2018 buyer cohort as a proxy for how our historical cohorts have performed, existing buyers have increased their GMS per buyer by more than 50% in the third quarter of 2020 when compared to the third quarter of 2019, even when excluding face mask purchases.
- We have also seen an increase in the value of our recent new buyer cohorts when measured by GMS per buyer. For example, a buyer in the second quarter of 2020, whose first purchase was not a face mask, spent 50% more in their subsequent purchases in the first 90 days on Etsy than a new buyer in the second quarter of 2019. New buyers in the second quarter of 2020 whose first purchase on Etsy was a face mask are similarly valuable in GMS per buyer in terms of subsequent 90-day purchases, although they are primarily returning to Etsy to buy more face masks.
- We made additional progress in search and discovery by relieving friction in the search journey to make the site more browseable, increasing site performance, and improving the relevance and engagement of recommendations. We removed guided search icons, which had a neutral impact as we’ve made improvements to organic search, and launched Single Page App pagination to create faster, more responsive search pages. In addition, we began to incorporate buyer characteristics into our ranking algorithm for in-cart recommendations, which drove incremental GMS in the third quarter.
- We leveraged reviews to help buyers make more informed purchase decisions on items they are searching for. By incorporating machine learning we are now able to prioritize the most helpful reviews which are those that have substantial text, images, and are similar to the target listing.
- We deepened the human connections in our marketplace by launching listing videos, which help sellers showcase their products to buyers in ways they previously could not with photos, showing their expertise in making and bringing their products to life. As of September 30, 2020, approximately 1.5 million sellers videos were uploaded.
- Through our product development efforts we built trust in our marketplace by focusing on the core buying experience, improving shipping transparency and post-purchase experiences. We are helping buyers better understand when they should expect an item to arrive by expanding listing coverage of expected delivery dates. We launched a tool to help sellers adjust their processing times, a key input for expected delivery dates, based on their historical performance for time to ship.
- We added enhancements to our Etsy Ads (formerly Promoted Listings) service, improving the relevance of ads in search and the speed of incorporating changes in a seller’s budget. We also made our Etsy Ads infrastructure more efficient, providing better search results while simultaneously using fewer cloud resources. To add to the seller experience, we launched performance graphs in the ads dashboard, helping to make advertising on Etsy as easy as possible for our sellers. These efforts contributed to the 91.4% year-over-year growth of on-site advertising revenue in the third quarter.
- We significantly increased our investments in marketing, and our optimization of spend across our marketing channels, with a particular focus on increasing the percentage of spend to mid and upper funnel channels. Upper funnel marketing spend, including television and digital video, was 18.1% of our overall marketing spend, or approximately $23 million, in the third quarter. During the quarter, the teams also worked to finalize our holiday plans, which include a sales hub, earlier visibility of holiday onsite, and gift guides.
- We’re also investing to drive frequency and buyer engagement. During the quarter, we launched a new buyer offer to target buyers through a series of emails after their initial purchase. We leveraged our CRM capabilities and machine learning to incentivize buyers to return to the site for a subsequent purchase.
- Our team remains highly productive while working remotely. During this time we allocated resources to critical infrastructure improvements to more accurately categorize our inventory and are investing in longer-term initiatives such as search and frequency and are seeing encouraging data from our recent product launches.
- Reverb launched a new feature that enables sellers to offer more competitive shipping rates to buyers that purchase multiple qualifying items. Reverb also made investments in customer support that are shortening response times for buyers and sellers.
Additional GMS highlights for the third quarter of 2020 include:
- GMS excluding mask sales for the Etsy marketplace was $2.2 billion, up 93% year-over-year, and 11% of the Etsy marketplace’s overall GMS was from mask sales.
- Etsy marketplace’s GMS per active buyer on a trailing 12-month basis grew 8% year-over-year and 4% excluding masks.
- In the third quarter, the Etsy marketplace delivered 9.6 million new buyers and 5.2 million reactivated buyers who have not purchased in a year or more. Habitual buyers, buyers with 6 or more purchase days and over $200 in spend in the trailing 12-months, grew 104%, outpacing overall active buyer growth, and repeat buyers, buyers with 2 or more purchase days in the trailing 12-months, grew 70% in the third quarter.
- GMS from paid channels was 19% of overall GMS in the third quarter of 2020, expanding 500 basis points compared to the third quarter of 2019.
- Consolidated active buyers grew 55.4% year-over-year in the third quarter, and active sellers grew 42.0% year-over-year.
Third Quarter 2020 Consolidated Financial Results
Total revenue was $451.5 million for the third quarter of 2020, up 128.1% year-over-year, driven by strong growth in both Marketplace and Services revenue.
- Consolidated take rate was 17.1% for the third quarter of 2020, up 60 basis points year-over-year, driven by Etsy Ads, Offsite Ads, and the expansion of our Etsy Payments Platform.
- Gross profit for the third quarter of 2020 was $331.3 million, up 156.8% year-over-year, and gross margin was 73.4%, up 820 basis points compared with 65.2% in the third quarter of 2019. The expansion in gross margin was primarily driven by our shift to Offsite Ads, which drives revenue growth without an equal offset in cost of revenue, and to a lesser extent revenue growth from Etsy Ads.
- Income from operations was $118.2 million in the third quarter of 2020, up 730% year-over-year, compared to a decline of 24% in the third quarter of 2019. The increase in income from operations was driven by an increase in gross profit coupled with leverage in operating expenses. Operating expenses were up 85.7% year-over-year driven primarily by our investments in marketing initiatives, including our shift to Offsite Ads where Etsy leverages its expertise and marketing budget to drive growth for sellers.
- Net income for the third quarter of 2020 was $91.8 million, with diluted earnings per share of $0.70.
- Non-GAAP Adjusted EBITDA for the third quarter of 2020 was $151.4 million and grew 259.9% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., non-GAAP Adjusted EBITDA divided by revenue) was 33.5% in the third quarter of 2020, up 1,220 basis points year-over-year. Adjusted EBITDA performance was driven primarily by year-over-year revenue growth.
- Cash, cash equivalents, short- and long-term investments were $1.6 billion as of September 30, 2020 in addition to a $200 million revolving credit facility that is currently undrawn. During the quarter, we issued $650.0 million of 7-year convertible senior notes. A portion of the proceeds were used to repurchase $301.1 million of our 0% Convertible Senior Notes due 2023 (“2018 Notes”) and to enter into $74.7 million of capped call instruments.
You can find the full press release with charts and guidance on the Etsy investor website.