Etsy Leads The Marketplaces With Solid Q3 Growth for 2021

Etsy released its Q3 earnings report last night and much unlike their larger marketplace cohorts actually reported some stable growth for Q3. Some of the key highlights were that they have reported a consolidated GMS (Gross Merchandised Sales) up of just under 18% year on year. They also grew their habitual buyers by 65% year on year too. Something that eBay certainly can’t claim over the same time period.

Surprisingly on the news of the earnings, the Etsy stock price did take a slight hit in after-hours trading settling at just under 2% down. (Update: The following day (11/04) the stock price climbed 15%) The only negative number in their earnings call was that their net income was down 2% on last year, however, this was easily explained by their acquisitions of both Depop and Elo7. Instead, it looks like the market has responded to their rather conservative projections for Q4 2021.

In their Q4 projections, they have made a steady estimate that their revenue will be between $660-690 Million whilst Wall St consensus was aiming for $694 Million which would explain the slight correction in their stock price.

All in all, this is a very solid earnings call for Etsy and they are standing out currently as the one large marketplace which has posted stable growth for Q3 2021. We have included an abridged version of their report below however if you are inclined you can read the full earnings report here.

Etsy Q3 Earnings Report

Etsy, which operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world, today announced results for its third quarter ended September 30, 2021, including the following highlights:

• Consolidated GMS was $3.1 billion, up 17.9% year-over-year; while Etsy marketplace GMS was $2.7 billion, up 12.4% year-over-year. Excluding face masks, Etsy marketplace GMS grew 23.7% year-over-year.
  • GMS per active buyer for the Etsy marketplace on a trailing twelve month basis grew 20% year-over-year.
  • The Etsy marketplace acquired approximately 11.1 million new and reactivated buyers who haven’t purchased in a year or more. While the growth in new buyers declined year-over-year as anticipated, we added approximately 7 million new buyers in the quarter. The number of new buyer quarterly additions continues to be meaningfully elevated when compared to pre-pandemic levels. Habitual buyers, those with 6 or more purchase days and $200 or more in spend in the trailing twelve months, grew 65% year-over-year, continuing to be our fastest growing buyer segment.
  • GMS from paid channels was 17% of overall GMS, decreasing 200 basis points compared to the third quarter of 2020.
• Consolidated revenue was $532.4 million, up 17.9% versus the third quarter of 2020.
• Net income was $89.9 million, down 2.0% year-over-year, with diluted earnings per share of $0.62. The decline in net income was due to acquisition-related expenses and non-cash amortization for the acquisitions of Depop and Elo7.
• Non-GAAP Adjusted EBITDA was $174.2 million, with Non-GAAP Adjusted EBITDA margin (i.e., Non-GAAP Adjusted EBITDA divided by consolidated revenue) of 33%, down 100 basis points compared to the third quarter of 2020, as we invested in the business.
• We ended the third quarter with $907.2 million in cash and cash equivalents and short- and long-term investments.

“Last year, Etsy dramatically outperformed eCommerce industry benchmarks, and now, in 2021, we’re lapping that performance with flying colors, reinforcing the significant market share gains we have made,”

“Our excellent third-quarter results further reflect that we’re moving the needle on frequency and that many of the millions of buyers who found or re-found Etsy during the pandemic are sticking with us, and performing even better than historical cohorts. We are also making great progress integrating our newest brands, Depop and Elo7, aligning their investment priorities, as well as Reverb’s, to those areas where we see opportunity for significant value creation.”

Josh Silverman, CEO, Etsy.

“Our strong third-quarter revenue of $532 million reflects continued consumer demand and increased purchase frequency on the Etsy marketplace,”

“We have continued to invest in both product and marketing to drive awareness and increase conversion. The strength of these investments is evident in our third quarter adjusted EBITDA margin of 33%, particularly notable given the integration of our newer marketplaces into our consolidated income statement this quarter.”

Rachel Glaser, CFO, Etsy.

Etsy Third Quarter 2021 Operating Highlights

Select highlights of our third quarter operating performance and business initiatives are outlined below:

Product: Our primary focus in 2021 is to improve customer experiences across the Etsy marketplace to engage and retain the millions of buyers that we acquired over the past year. These are just a few of our initiatives during the third quarter, aligned with our Right to Win strategy.

• Leveraging XWalk, our large-scale, real-time graph retrieval engine, we’re continuing to narrow the semantic gap by relying less on listing taxonomy and more on buyer interests. Additionally, during the quarter we incorporated datasets with buyer hobbies and mapped them to Etsy listings to deliver more relevant inventory and improve conversion rate for recommendations. We’re also utilizing machine learning to enable real-time personalization that better understands buyers’ needs while they shop.
  
• We launched “The Etsy House,” our first-ever interactive, augmented-reality feature that allows buyers to shop a digital home filled with curated items. This is an innovative way to showcase the quality and breadth of sellers’ merchandise.
  
• We made substantial improvements to delivery transparency ahead of the holiday season: nearly 100% of U.S. listings now include expected delivery date and origin zip code information.
  
• Our launch of Etsy’s Star Seller program, which defines what success looks like by celebrating and rewarding our top-rated sellers, defining standards, and giving them motivation, support, and agency to improve their Etsy businesses, has improved several customer service metrics critical to the Etsy platform, such as on-time shipping and responsiveness. Also, early signals indicate that purchasing from a Star Seller may increase buyer frequency, with Star Sellers generating higher repeat purchase rates than those who have yet to achieve the badge. We also recently launched a preview version of our new Sell on Etsy App, which is trending positively in seller engagement.
  
• We’ve focused on transitioning buyers to our Buy on Etsy app, which we believe is the best way to transact on Etsy; personalizing the on-boarding experience and helping buyers discover items and shops that align with their tastes and preferences. As a result, during the quarter the app surpassed mobile web in GMS share for the first time ever, and we saw a 36% year-to-date increase in app downloads – ranking the Etsy app the fifth most downloaded in the Apple Store.

Marketing: We continued to optimize spend across our marketing channels, with particular focus on increasing the percentage of spend to upper and mid-funnel, and launching creative new marketing campaigns that target frequency improvements.

• Brand marketing for the Etsy marketplace continues to be a significant focus, with spend at 15% of our total marketing expense in the third quarter, or approximately $19 million. In the U.S., our brand metrics remained stable sequentially with noticeably improved visit intent and recommendation when compared to this time last year.
  
• Examples of new or expanded marketing initiatives include:
  
  • Introduction of male-targeted ad campaigns in the United States and testing of out-of-home advertising in the United Kingdom;
    
  • Introduction of our third “Creator Collab,” focused on supporting sellers from the LGBTQIA+ community, targeting international markets. This latest collaboration drove strong sales and delivered positive return on investment and strong international earned media; and
    
  • Creation of an impactful global press strategy and multi-channel activations to celebrate the winners of our third-annual Etsy Design Awards.
    
• For Holiday 2021, we’re reinforcing Etsy as the go-to destination to shop and gift meaningfully – launching a variety of strategic initiatives including encouraging early shopping through our Early Holiday Sales Event and targeted buyer discounting. We are also helping sellers to manage anticipated carrier delays and holiday delivery cut off dates to meet buyers’ expectations.
  
• We continued to invest with discipline in our performance marketing channels, testing and refining our ROI models, and continuing to optimize to marginal return efficiency. During the quarter we pulled back on performance marketing to measure the incremental performance of several channels.

Impact Pillars: We continued to make progress on our Impact strategy that reflects the positive economic, social, and ecological impact we want to have on the world while advancing and complementing our business strategy. Here are some highlights:

• We’re making progress towards reaching our pledge of being Net Zero by 2030. We’re offering U.S. sellers planet-friendly packaging options to help reduce Scope 3 greenhouse emissions and build buyer awareness of Etsy as a sustainable place to shop.
  
• Our Uplift Makers program has supported the launch of almost 40 shops representing heritage craft makers from across the Southern United States. In its first six months, the Gee’s Bend quilting community generated more than $300,000 in sales through their Etsy shops. We are now aiming to replicate that success for the recently launched shops of the Gullah basket weavers, a community in South Carolina known for their unique basket-weaving techniques.

Lastly, we are on track with our work integrating Depop and Elo7 into Etsy, Inc., and developing focused investment plans designed to deliver value creation across our businesses. In particular, we see opportunities to capitalize on Etsy’s experience driving the growth of two-sided marketplaces with similar product and marketing strategies.

Near-term priorities for Depop include focusing on increased brand exposure, improving the customer experience and optimizing conversion rate, growing value-added seller services, and expanding marketing strategies.

Elo7 is focused on optimizing conversion rate through investments in search and discovery, refining marketing efficiency, and improving the buyer and seller experiences. And Reverb continues to invest in its core focus areas for 2021: increased personalization, selling more new gear, international growth, and improving the customer experience.

Financial Guidance and Outlook

Below is Etsy’s guidance for consolidated GMS, revenue, and Adjusted EBITDA margin for the fourth quarter of 2021.

GMS:	$3.9B to $4.1B; with ~12% year-over-year growth at the midpoint; Etsy marketplace: high single-digit growth
Revenue:	$660M to $690M; with ~10% year-over-year growth at the midpoint
Adjusted EBITDA margin:	~26%

“We anticipate that Etsy’s highly distributed supply chain, with creative entrepreneurs located around the globe, is ready to serve the world in ways many others can’t this holiday season.  In fact, our guidance implies that the fourth quarter will be our best GMS quarter ever. It is gratifying to see how shoppers have loved the experience they’ve had with Etsy and are coming back for more – even in a world of greatly expanded choice. We are moving in a different direction from commoditized marketplaces – for the Etsy marketplace as well as our full ‘House of Brands’ — Reverb, Depop, and Elo7. We have a strong conviction to invest with discipline in what we see as a multi-trillion dollar market opportunity and to position Etsy for further growth in 2022 and beyond.”

Josh Silverman, CEO, Etsy.

“Etsy’s unique market positioning, as well as strong operational and investment plans, are expected to enable us to deliver solid top-line growth this quarter, even as we compare to last year’s pandemic-driven performance. Within our fourth quarter GMS guidance, we are forecasting very solid high-single-digit GMS growth for the Etsy marketplace, implying relatively stable two-year growth when compared to the third quarter of 2021.”

Rachel Glaser, CFO, Etsy.

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