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Tue May 3 2016 16:25:39

Etsy Reports First Quarter 2016 Financial Results

By: Ina Steiner

Sponsored Link

Etsy's conference call with analysts is at 5:30 pm EST today, here is the company's press release announcing first quarter 2016 earnings, you can view the full release with tables on Etsy's investor relations website.

Etsy, Inc., a marketplace where people around the world connect, both online and offline, to make, sell and buy unique goods, today announced financial results for its first quarter 2016, ended March 31, 2016.

"Our financial results in the first quarter were driven by our strong execution," said Chad Dickerson, Etsy, Inc. CEO and Chair. "We supported 1.6 million active sellers and 25.0 million active buyers, who together generated nearly $630 million in GMS. The second quarter is also off to an exciting start with the launch of our newest high-impact seller service, Pattern by Etsy, and a host of other products and seller tools that we believe will build long-term value for our community. We are as committed as ever to our vision of reimagining commerce and are looking forward to a productive year."

First Quarter 2016 Operational Highlights
GMS was $629.9 million, up 18.4% compared with the first quarter of 2015. On a currency-neutral basis (excluding the direct impact of currency translation on GMS from goods that are not listed in U.S. dollars) GMS growth in the first quarter of 2016 would have been 19.1% or approximately 0.7 percentage points higher than the as-reported 18.4% growth. We believe that weaker local currencies in key international markets continued to have an indirect impact on international buyer behavior and GMS growth by dampening the demand for U.S. dollar-denominated goods. As we begin to anniversary the major gains of the U.S. dollar against global currencies it is increasingly difficult to estimate the indirect impact of currency exchange rates on international buyer behavior and GMS growth. We believe, however, that the continued year-over-year decline of GMS between international buyers and U.S. sellers, which was down approximately 11% year-over-year in the first quarter, is indicative of the ongoing impact of currency valuation. In contrast, excluding our French marketplace ALM, GMS from international buyers making purchases from sellers in their own country grew approximately 56% year-over-year during the first quarter of 2016.

Growth in GMS was supported by 12.3% year-over-year growth in active sellers and 20.1% year-over-year growth in active buyers.  Percent mobile visits was approximately 63% compared with approximately 59% in the first quarter of 2015 and approximately 61% in the fourth quarter of 2015. Percent mobile GMS was slightly more than 47% compared with approximately 43% in the first quarter of 2015 and approximately 44% in the fourth quarter of 2015. Continuing the trend we've seen for multiple quarters, mobile visits once again grew faster than desktop visits and, once again we narrowed the gap between mobile visits and mobile GMS. Further supporting this trend was our strong year-over-year growth in mobile app and mobile web GMS, which each grew faster than desktop GMS during the first quarter.

We saw percent international GMS begin to stabilize in the first quarter of 2016 and we continue to believe that we can grow international GMS, over time, to represent 50% of our total GMS. We believe currency exchange rates contributed to the slight year-over-year decline in percent international GMS, which was 30.3% in the first quarter of 2016. Percent international GMS was 30.5% in the first quarter of last year and 29.2% in the fourth quarter of 2015.  

Recent Launch Highlights
During the first quarter and the month of April we launched a new seller service as well as several new products and seller tools. Highlights include: <table not included>

Pattern by Etsy, our newest paid seller service that we launched in April. Pattern enables Etsy sellers to create their own custom websites in minutes and leverage all the hard work they've already put into their Etsy shops. Pattern will help Etsy sellers address a fundamental pain point, the need to market and promote their businesses, and allow them to spend more time on the creative aspects of their shops.

Shop Home, a product we launched in April that brings a new modern look and feel to Etsy on each shop's landing page. We've redesigned shops on Etsy, making them more customizable and mobile friendly, providing a consistent shop experience to Etsy buyers regardless of what device they use. This new product gives Etsy sellers more creative control over the look and feel of their shops and allows them to highlight their brands within the Etsy marketplace.

Shop Videos, a new seller tool launched in January that enables Etsy sellers to record, edit and upload videos about themselves and their shops directly from the Etsy app. We believe this tool will encourage Etsy sellers to share their inspirational stories with Etsy buyers and allow our community to connect and engage in new ways.

First Quarter 2016 Financial Highlights
Total revenue was $81.8 million, up 39.8% year-over-year, driven by growth in both Marketplace and Seller Services revenue. Marketplace revenue grew 18.5%, primarily due to growth in transaction fee revenue and, to a lesser extent, growth in listing fee revenue. Seller Services revenue grew 59.6% year-over-year and was driven primarily by revenue growth in Direct Checkout, which continued to benefit from the integration of PayPal. Seller Services revenue also benefited from robust growth in revenue from Promoted Listings and Shipping Labels. All three of our Seller Services continued to grow faster than Marketplace revenue in the first quarter. We also recognized $1.7 million of gift card funds from our third-party service provider in Other revenue during the first quarter, reflecting a portion of accumulated unused gift cards.

Gross profit for the first quarter was $53.9 million, up 42.6% year-over-year, and gross margin was 65.9%, up 130 bps compared with 64.6% in the first quarter of 2015. Gross profit grew faster than revenue in the first quarter because of the leverage we achieved in technology infrastructure and employee-related costs and because of the gift card revenue, which carries a high incremental margin.

Total operating expenses were $47.2 million in the first quarter, up 10.5% year-over-year, and represented 57.6% of revenue, down from 72.9% of revenue in the first quarter of 2015. The favorable year-over-year comparison was partially driven by the $3.2 million one-time charitable contribution that we made to Etsy.org in the first quarter of 2015. Excluding this expense, total operating expenses would have grown 19.4%, a significantly slower pace of growth than our revenue growth.

During the first quarter, we began to gain leverage in our marketing expenses, which grew more slowly than revenue. Marketing expenses grew 29.8% year-over-year and were primarily driven by growth in digital marketing expenses focused on product listing ads and affiliate marketing campaigns and employee-related expenses.

Product development expenses grew 22.2% year-over-year, primarily due to higher employee-related expenses. G&A expenses decreased 6.8% year-over-year. Excluding the $3.2 million one-time charitable contribution to Etsy.org in the first quarter of 2015, G&A expense growth would have been 10.5% in the first quarter of 2016, driven by increased professional services spend and rent expense related to new office locations. Finally regarding G&A expenses, we also benefited from a mark-to-market adjustment that lowered our stock-based compensation expense (related to the acquisition of ALM) compared with the first quarter of 2015.

Non-GAAP Adjusted EBITDA for the first quarter was $14.8 million and grew 121.1% year-over-year. Non-GAAP Adjusted EBITDA margin was 18.0%, up 660 bps year-over-year. Non-GAAP Adjusted EBITDA performance was impacted by leverage in employee related costs, the previously mentioned high incremental margin gift card revenue and leverage in marketing spend. In the second quarter, we expect to accelerate the pace of hiring and do not expect to realize a significant gift card revenue benefit; both of these factors will impact our Adjusted EBITDA performance.  

Net income for the first quarter of 2016 was $1.2 million, compared with a $36.6 million net loss in the first quarter of 2015. Etsy's net income in the first quarter of 2016 was impacted by a foreign exchange gain and our income tax provision. We recorded $8.1 million of foreign exchange gain in the first quarter of 2016 largely made up of a non-cash currency gain. We also recorded a $13.6 million tax provision in the first quarter of 2016 primarily driven by non-cash charges.

Net cash provided by operating activities was $1.8 million in the first quarter of 2016 compared with $8.9 million in the first quarter of 2015. The decrease in net cash provided by operating activities for the quarter was mainly due to the timing of payments to certain vendors. During the first quarter of 2016, we invested approximately $10 million in the build-out of our new Brooklyn headquarters. As planned, we intend to invest up to a total of $50 million in build-out costs.

Cash, marketable securities and short- and long-term investments were $281.7 million as of March 31, 2016.

Financial Guidance
We are reiterating the 2016 and 3-year guidance we previously provided as well as the key drivers of our expected performance during these time periods. We continue to believe that over the next three years we can deliver solid revenue growth and achieve leverage in our cost structure to expand our margins:

2016-2018 CAGR Range / 2016 Guidance

GMS Growth: 13-17% - Mid-point of range
Revenue Growth: 20-25% - High end of the range
Gross Margin (by end of 2018): Mid 60s (%) - 64-65%
Adjusted EBITDA Margin (by end of 2018): High teens (%) - 10-11%
 
We anticipate that the key factors impacting revenue and GMS growth over the next three years will include:

- Further narrowing of the gap between mobile visits and mobile GMS
Stable percent international GMS, assuming that currency remains stable compared to average levels in December 2015

- Continued revenue growth in our existing seller services, driven by both adoption and product enhancements

- Modest contributions from new product launches and seller services, including recently developed products and tools, and Pattern by Etsy, which we launched early in the second quarter of this year

We anticipate that the key factors impacting our gross margin forecast over the next three years will include:

- Continued revenue growth from our existing seller services, driven by both adoption and product enhancements

- The impact from new seller services, including Pattern by Etsy

We also expect to gain leverage in our operating cost structure over the next three years, particularly within marketing spend:

- In 2016, we expect marketing expense as a percent of revenue to decline, but that overall operating expenses as a percent of revenue will increase driven by expenses associated with our new headquarters and with Sarbanes-Oxley compliance.

- As planned, we expect to complete construction and move into our new Brooklyn headquarters in the second quarter of 2016. Our headquarters is subject to build-to-suit accounting and, therefore, we will not recognize rent expense once we move. Instead, we expect to recognize incremental depreciation and interest expense of between $1 and $2 million in the second quarter. After the second quarter, we expect to record an average of $3 million in depreciation and interest expense per quarter for the duration of our lease.

Finally, from an Adjusted EBITDA margin perspective, we expect to reach a high teens range by the end of 2018.

- During the second quarter we expect to accelerate our pace of hiring and marketing spend compared with the first quarter of 2016 and do not expect to benefit from a significant amount of gift card revenue, which carries a high incremental margin.

- Based upon these factors, we anticipate second quarter Adjusted EBITDA margins to be in the 6-7% range. In recent years, we have recorded the lowest level Adjusted EBITDA margins in the second and third quarters of the year.

Webcast and Conference Call Replay Information
Etsy will host a webcast to discuss these results at 5:30 p.m. ET today. To access the live webcast, please visit the Etsy Investor Relations website, investors.etsy.com and go to the Investor Events section.




Comments (19) | Permalink

Readers Comments

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

by: Watching the Wheels This user has validated their user name.

Wed May 4 07:41:53 2016

But, ... how well will the seller services grow? Etsy does NOT deliver quality products.

Chad attempted to foist Pattern on sellers who had merely clicked the "LEARN MORE" button, and sellers have discovered that competitor listings are being displayed right about the "find out more about the seller" section when viewed on your phone.

Granted this move will PO some veteran sellers into getting themselves muted, and create canceled ad $$ for the coveted top tier placement of a given item, since sellers resent paying to give exposure to the competition.

How long before the gold egg laying goose dies?

TRUMP has been doing quite well for himself, and as uncouth as he can be, PAY HEED!!!

AMERICANS HAVE REACHED THEIR BREAKING POINT.

Silver has gained a few bucks, and remember the sage advice offered in "The Prince".

Guess what? The people are NOT well disposed; the Princes now need to become fearful.

I just can't fathom how the alleged ?best of the best?, in business CANNOT SEE how their money changer ways ARE DESTROYING THE ECONOMY.

Whose to say, maybe handcrafted guillotines will become the next HOT ITEM,  sold on Etsy.

You can always go to the financial pages to find out who to test the machinery on.

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

by: Watching the Wheels This user has validated their user name.

Wed May 4 08:01:41 2016

Lest "we" forget:

The ensuing forum threads highlight a series of bugs, glitches and poorly executed policies within the site




http://www.etsy.com/forums_thread.php?thread_i
d=6306469
-- DISCUSSION REGARDING THE FLAWS OF WEEKEND DEALS



http://www.etsy.com/forums_thread.php?thread_id=6180740 -- HANDMADE ADDED WITHIN METE TAGS ON ALL ITEMS



http://www.etsy.com/forums_thread.php?thread_id=6243678 -- TIME LAG ISSUES REGARDING EDITED ITEMS  

The newest 2:

https://www.etsy.com/teams/7722/discussions/discuss/17680794
/page/69

https://www.etsy.com/teams/7722/discussions/discuss/17652161/

This
has been Etsy's classic MO.

:) Just food for thought.

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

by: VintageLady This user has validated their user name.

Wed May 4 11:24:32 2016

I have recently come across this graph showing the revenue share evolution for the past 3 years:
http://www.statista.com/statistics/409391/etsy-revenue-segme
nt-distribution/
Revenue
from sales decreased from 75% to 48% while revenue from seller services was up from 17% to a staggering 50%. The decline in revenue from sales affects sellers revenues first and explains  countless shops reporting no sales in months.
Offering ''seller services''as a concept does not bother me as a seller as long as I have a reasonable choice. But making it a condition (pay to play or else) for selling on Etsy, through underhanded methods and policies  is wrong (use any synonym here: deceptive, dishonest, dishonorable, unethical, unprincipled, unscrupulous, dubious, unfair)

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

This user has validated their user name. by: White Rabbit

Wed May 4 12:02:54 2016

years the BOB and chad have been in charge - never made a profit.

so they are quite proud of making a 1 cent per share profit. the first income they have every made on the site. 1 cent!!

And.. we all know how they created a 1cent income per share.. they robbed the sellers.

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

This user has validated their user name. by: IDKwhoIare

Wed May 4 15:24:10 2016

...and now they can afford to give us a "free" digital scale! Yippee Skippeeeeeeeeeeee!

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

by: maxmad This user has validated their user name.

Thu May 5 06:04:42 2016

Just wait until your customers, and shareholders find out what you really did........

Shame on you etsy,


Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

This user has validated their user name. by: Rexford

Thu May 5 06:48:44 2016

They went public to make Chad rich.  Nothing else matters (to them at least).

Once one of these companies goes public it is over for small sellers. Just look at what it did to eBay.

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

by: rhawk This user has validated their user name.

Thu May 5 08:10:36 2016

After 16 years on ebay, etsy sales are now better than ebay.

Etsy is much easier, and less headache.

Unless they start limiting visibility,....etsy is heaven compared to ebay.

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

This user has validated their user name. by: White Rabbit

Thu May 5 11:32:28 2016

Free Digital scale?

where do i get mine?

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

by: Writings on the Wall This user has validated their user name.

Thu May 5 19:17:28 2016

Etsy sellers need to speak truth to poser:  stop the promoted listings, stop using Etsy shipping as it is another "seller service" (you can use Paypal's if you have it,) stop Pattern if you have it, and add no listings or renewals for at least a week.--- Bring them to their knees.----
The forums are on fire again, Really, sellers, wise-up and hurt them in the pocketbook so they learn who their customers are--the sellers.

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

by: Writings on the Wall This user has validated their user name.

Thu May 5 19:18:12 2016

typo above: Sellers need to speak truth to power...

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

This user has validated their user name. by: White Rabbit

Fri May 6 09:11:19 2016

I agree "Writings" get a website many sites are FREE like Tictail.com (don't pay for the extras there)
COOP - 100% FREE -http://www.sellergroup.com/forums.html
Face Book Groups are FREE - great place to sell probably 1,000s of FB groups that you would fit in to.

Do a little research- lots of free sites out there or pay very little for quality. A support group helps with this decision.

The point is not to promote Etsy.. you pay etsy, let Etsy promote itself. That is why you pay them. They are also redirecting traffic you send them to others. see the thread below this one on that lil Etsy scam.

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

This user has validated their user name. by: White Rabbit

Fri May 6 18:27:56 2016

as far as the attitude of Etsy and the sellers?

3,375 posts!

etsy's reply.. basically tuff.. love it or leave it as we call the shots!

https://www.etsy.com/teams/7722/discussions/discuss/1768
0794/

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

by: maxmad This user has validated their user name.

Fri May 6 18:52:20 2016

etsy stock DOWN 8 Percent Today !

Looks like the shareholders didn't fall for it,  

Now wait until all your customers find out, what you did.


Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

This user has validated their user name. by: Philip Cohen
Web Site

Fri May 6 19:41:00 2016

@maxmad,
Well, that's not as bad as Square; it's down ~20%; still, after all these years they are yet to make any profit ...

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

by: Writings on the Wall This user has validated their user name.

Fri May 6 23:46:18 2016

The analysts aren't buying Etsy's spin on their "strong execution" as they note that the sellers are leaving in droves:

http://www.bloomberg.com/news/articles/2016-05-06/etsy-
drops-after-reality-check-on-long-term-growth-outlook
Stock
is lower than before Etsy released this report of their "strong execution."
The Emperor has no clothes.

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

by: maxmad This user has validated their user name.

Sat May 7 00:34:32 2016

@Philip Cohen

that's too bad, maybe Strpe should use some of etsy's ''creative'' underhanded tactics,  

Seems to be a trend these days, with these companies, these pinheads can't find real new business, the new sales team is now made up of lawyers that can draft up user agreements
for existing customers stupid enough to agree to them
 

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

This user has validated their user name. by: RKTOYS

Mon May 9 16:43:39 2016

@PhilipCohen
Square just won't pull its head out of its flat per-order shipping ass.  That alone makes their marketplace a non-starter for me.  I can build something around the API, eventually, but it's time and effort that I shouldn't have to expend.

I really like them as a live event CC processor but spending is way down and almost exclusively cash these days.  Nobody runs up a $75 tab.  They buy one item.  And become very agitated if the CC carries a tax obligation (I include sales tax in cash prices but it's separated out due to how the CC software works).

Etsy Reports First Quarter 2016 Financial Results   Etsy Reports First Quarter 2016 Financial Results

This user has validated their user name. by: Philip Cohen
Web Site

Tue May 10 00:37:06 2016

@RKTOYS,

I guess the real question is, how long can Square survive, offering even a good service, if they can't make any money out of such service at the prices they have to charge to retain the business?

Unlike the clunky "PreyPal", Square rides wholly on the back of the credit card companies and therefore the only people making any money are the credit card issuers ...



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