Etsy announced financial results for its second quarter, which 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. 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.”
Josh Silverman, Etsy, Inc. Chief Executive Officer
Second Quarter 2019 financial summary and highlights
“In the second quarter of 2019 we continued our momentum, posting 37% revenue growth and 43% growth in EBITDA versus prior year. 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.”
Rachel Glaser, Etsy, Inc. Chief Financial Officer
Product experiment velocity increased to another record high during the second quarter.
Etsy’s initiatives focused on highlighting their unique inventory, and the company said improving search and discovery, strengthening their human connection, and building a trusted brand.
In the second quarter, Etsy said it 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.
Also, Etsy improved the mobile app incorporating signals and nudges throughout the app experience to fuel growth.
As of the end of the second quarter, Etsy migrated a majority of the platform to Google Cloud, including machine learning efforts, making progress on their two-year migration plan, which the company expects to complete in early 2020.
During the second quarter, Etsy launched a new national television campaign which they said had a positive impact on visits and purchase intent.
The company claims market research indicates that buyers who were exposed to the TV ads were more likely to 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, Etsy tested incrementality across all marketing channels, which resulted in a shift in the investment mix to higher performing channels in the second quarter.
Leveraging data and insights, some channels were paused indefinitely and Etsy 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 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 accelerated for the third consecutive quarter, on a constant currency basis, driven by local efforts in core international markets, including Germany, which continues to benefit from the DaWanda agreement.
- During the second quarter, Etsy completed the test and design phase to make free shipping a core part of the Etsy shopping experience. In July, the company 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 US buyers.
- Etsy plans to launch a consolidated ad platform for sellers. Beginning in the third quarter of 2019, Promoted Listings, the 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. The transaction is expected to close in the late third quarter or early fourth quarter of 2019, subject to Hart-Scott-Rodino review and other customary closing conditions.
Second Quarter 2019 key 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 Etsy believes is a tailwind to their 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 the 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 Etsy’s 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.
Etsy’s full results are available on their investor site.