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.
Recent Announcements:
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.
Click on the link below to see the full press release including tables and charts.
SOURCE: Etsy Press Release
Lets break this down, shall we :
“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.
*Silverman is hugely disrespecting the “core marketplace”….removing some critical key metrics artists depend on.
*Silverman is blissfully unaware Etsy has NO PORTFOLIO OF PRODUCT. Rather it is the COVETED COLLECTION of the creations of talented artists being hijacked and used improperly for his own personal gain.
“We are making great progress improving our product experience and marketing capabilities, and it is paying off.”
*There has been a degradation in the entire routine from beginning to end for artists.
* “Product Experience” …..unless it’s a living breathing thing, there’s no experience going on there….
* Marketing, there is NO MARKETING. Showing 10 seconds of mass produced Chinese crap does NOT a marketing technique make.
“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.”
*Shipping is NOT in the “Wheelhouse” or “Purview” of anyone OTHER THAN the artist, therefore making this a delusional statement by Sliverman.
*Shipping is NOT an experience, unless your life is so dull, and boring, or you’re an idiot.
“fuel our growth even further” is Silverman speak for : “Now I get to buy that mega yacht to compete with the guy in the slip next to me.”
*At this juncture, Etsy has no future.
We need a Brand New All American NON Corporate Venue. NOW. Please.
BLACKLIST SILVERMAN.
Just read all the “BLAH BLAH” about Etsy enhancements.
Not impressed.
They want US to pay for Etsy / Google ads.
Not happening.
Etsy can pay for ads with all the free money they get from us.
The biggest thing is : Etsy will soon find More ways to wreck the platform.
It just is not a pleasant experience (now That’s an experience) being on Etsy anymore.
If they crack that whip one more time, I’ll wrap it around Silverman’s neck……
“we migrated a majority of our systems to Google Cloud”
As I mentioned in another post, cloud space is expensive and they already do not pay for enough of it to display ALL products in a search (one test search only displayed 14K of 530K listings — 2.6% of what is available). So, basically, they’re paying for cloud space so their tech department can focus on innovation rather than properly running the site (as their tech-head stated he wanted them to do).
That’s not the purpose of a tech department (aka, IT department – IT being short for information technology). What they’re “wanting” to do is the purpose of a product development department, which does require programmers (an engineering department), so what are those departments working on? Pushing free shipping that’s not free and is against the law? Designing new tools for Etsy to take more money from sellers rather than actually helping small businesses as they claim?
Where is the separation between their IT department and the departments actually responsible for what IT is claiming it wants to do instead of its real job? So, while the tech department is busy innovating, instead of properly running and maintaining the site and its servers, Etsy is paying for cloud space so they can continue tinkering with an already unstable platform.
That just goes to show how inexperienced the people running this show really are. Their department heads don’t even know the purpose of their own departments — and they’re all working under an equally inexperienced and seemingly ignorant CEO. Although, he could know that he’s just a crook trying to get away with as much as he can since the government has been sitting idly by.
“International domestic growth, our fastest growing trade route”
I’m guessing he’s referring to international sellers receiving more orders from their own domestic consumers. That would have everything to do with the fact that they are limited to their own country’s or region’s browsers. Many international sellers have claimed that most of their sales come from the US, but that those sales have plummeted. Now they’re forced to serve solely their own area. How can Etsy call itself a global marketplace when it throttles sellers’ listings to limit their marketing to locals?
This is a perfect example of how Silverman manipulates things to produce false results to “back up” his false claims. He claims it’s their fastest growing trade route, but he fails to mention WHY and how he’s hurting international sellers by seriously limiting their audience. Just like he offered site-wide free shipping to skew results about what shoppers prefer so they could push free shipping to ensure they maximize profits on final value fees.
Can you say…con artist?
“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.”
Most likely resulting in even less transparency into where a sellers’ advertising dollars are going. Sellers are already complaining about not being able to determine if the clicks they’re paying for are legit or not.
“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.”
Too bad marketplace revenue still falls short of what sellers are paying for services. Growth or no growth, that’s a clear indicator of where Etsy is putting its focus.
Sorry–I must be one of the few sellers whose Etsy revenue & sales are down 50% this year.
If you’re selling on Etsy, it’s implied and understood (by the nature of it’s original intent) that you will fill a Niche with your product.
By doing so, it will sell itself.
It can’t fail if you observe the lives of those around you and seek to bring happiness in a simple way.
Relax and take stock of your surroundings.
Your discovery Must be Unique.
My Q2 Etsy revenue was up 218% over Q2 2018. I’m not a “1099 seller” … just get lucky once in awhile!
@TheEnd – Guess you’ve not seen Etsy’s TV commercials? They seem to have backed off those in the last couple of months; hope they bring them back soon!
@TheEnd – “We need a Brand New All American NON Corporate Venue. NOW. Please.”
MakersFront is hoping to be most of that … at least new & non-corporate. Check it out!
@PickyChicky – “Can you say…con artist?” Joshy was previously associated with eBay. ’nuff said!