Etsy Q4 & FY19 Earnings Rock – Plus Highlights From Earnings Call

Etsy
Etsy

On Wednesday, Etsy released its 2019 fourth-quarter earnings that resoundingly beat Wall Street estimates. The stock jumped 13 percent in after-hours trading on the news.

Etsy revenue in Q4 topped $269.9 million, up 35 percent year-over-year. Earnings per share of $.25 cents crushed analysts’ anticipated earnings of $.16 per share.

GMS (Gross Merchandise Sales) was also up 26.5 percent for the full year 2019, but that included $242.4 million GMS from its acquisition of Reverb. Still, without the Reverb number, Etsy GMS grew over $700 million for the full year 2019.

The marketplace ended the quarter with 46.4 million active buyers, a 17.5 percent rise year-over-year. It also grew its seller base to 2.7 million active sellers, an incredible growth of 27.6 percent.

Looking ahead, Etsy estimates Full-Year 2020 revenue to come in between $1.04 billion to $1.06 billion surpassing the Street’s call for $1.02 billion.

The compete 2019 fourth quarter and full-year financial results are available here.

Earnings Call

As is customary when earnings are released, companies hold an earnings call discussing the results with analysts.

Here are some highlights from the call, especially in light of yesterday’s announcement from how Etsy is changing its advertising program and the impact it will have on sellers.

Unless otherwise noted, all quotes are by Joshua Silverman, Chief Executive Officer.

On Operations

“We are just getting started, leveraging our strengths in the $100 billion-plus available market we’ve identified for Etsy’s special merchandise, pulling our growth levers of more active buyers, improved frequency and higher AOV [Average Order Volume].”

“Cyber Monday and Tuesday were Etsy.com’s first and second highest GMS-driving days ever. In fact, we delivered approximately $20,000 in GMS per minute during each of these two days. Also, GMS for the five days from Thanksgiving through Cyber Monday was up 30% compared to last year.”

On Free Shipping

“We believe that by changing customer perceptions of shipping costs in the Etsy marketplace, we will increase conversion, increase frequency and drive growth on the marketplace, and we’re making great progress.”

“At the end of the fourth quarter, 74% of U.S. listing views were for items with free shipping. About 65% of U.S. buyer GMS shipped for free, and nearly half of all orders received by U.S. buyers were delivered with free shipping. At the time we launched our free shipping initiative last July, only about 24% of items were available to ship for free to the U.S.”

“…in a survey conducted in January, only 12% of Etsy buyers were aware that we offer free shipping.”

On Advertising Program Changes

“…last August, we launched Etsy Ads, a product that combines our on-site promoted listings and off-site Google shopping services. Over the past six months, Etsy Ads has delivered positive returns for sellers and solid revenue growth for Etsy.”

“While sellers viewed the advertising interfaces visually appealing and simple to use, many sellers perceive off-site advertising is risky.”

“They’re uncomfortable spending money upfront to buy traffic from off-site ads when they’re less confident of a buyer’s purchase intent.”

How Offsite Ads Will Work

“When a shopper clicks on an online ad featuring a seller’s listing and purchases from their shop, the seller will pay an advertising fee on that order only when they make a sale.”

“For sellers, this means that they will be getting a really competitive roll-offs of six to eight times, utilizing the benefits of our marketing budget and expertise promoting their listings off-site without the risk that it might not lead to a sale for them.”

“For Etsy, this means that we can rapidly scale our off-site advertising program without any budget limitations, a win-win solution.”

“In terms of the structure of the off-site advertising program in particular, we do anticipate that there will continue to be some subsidy of Etsy to the program. So the 15% and 12% fee will cover much, but not all, of the [advertising] cost.”

“…frankly, the program works better when they’re all in it together. We have more data and more ability to work together with partners like Google and Facebook and others to really scale that program.”

“We’re also going to give them [sellers] a couple of weeks of sort of free trial period, where they will actually get to experience it. And I think for folks who think that this is going to be a large part of their sales, that will typically be reassuring.”

On Claim Offsite Advertising Will Only Impact 10 Percent of Sales

“…is based on our existing experience with PLA (Product Listing Advertising) programs, and so we’re just trying to dimensionalize for sellers what kind of impact this might be because they’ve got to think about pricing strategies and other things.”

On Reception of Advertising Program

…the overall tone and tenor has been, we’ve been very pleased with not everybody loves it, just as we expected. But there’s, I’d say, more positive than dissension and positive in the extreme. So we’re very pleased with how the communication is going thus far.” – Rachel Glaser, Chief Financial Officer

On Sales Tax

“We definitely do see a bigger impact to higher AOV items. So Etsy has a number of categories where that would apply to, and Reverb also because their average order value is significantly higher than Etsy’s average order value.”

“And so we that’s why we said we don’t believe there’s any material impact from the Etsy sales going forward, and the impact that we called out in the past year is going to be lapped by the time we get to October 1, 2020.”

On Repeat Buyers

“…habitual buyers are growing 23% this year to about 2.5 million.” – Rachel Glaser, Chief Financial Officer

What do you think about Etsy’s performance and the changes the marketplace is making, especially in advertising?

Please use the comments section below or head over to our Facebook Group for Small Business Sellers and interact with other small business owners.

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