Etsy Generated $603.6 Million in Revenues in 2018

BROOKLYN, NY — Etsy, Inc. (NASDAQ: ETSY), the global marketplace for unique and creative goods, announced financial results for its fourth quarter and full year ended December 31, 2018.

“By making Etsy a great destination for holiday shopping, we delivered strong fourth quarter results to end an excellent year,” said Josh Silverman, Etsy, Inc. Chief Executive Officer. “On a currency-neutral basis, 2018 gross merchandise sales grew 20.4% to $3.9 billion for the year, revenue was up 36.8% to $603.7 million for the year, and we improved our margins. We kept our focus on improving search and discovery, building trust in the marketplace, expanding our marketing channels, and investing in services that fuel our sellers’ success.”

Fourth Quarter and Full Year 2018 Financial Summary

(in thousands except percentages; unaudited)

Three Months Ended

 December 31,

% Growth

(Decline)

Y/Y

Year Ended

 December 31,

% Growth

(Decline)

Y/Y

2018

2017

2018

2017

GMS

$

1,246,472

$

1,019,452

22.3

%

$

3,931,745

$

3,253,609

20.8

%

Revenue

$

200,028

$

136,268

46.8

%

$

603,693

$

441,231

36.8

%

Marketplace revenue

$

150,540

$

102,261

47.2

%

$

440,740

$

326,076

35.2

%

Services revenue

$

48,622

$

34,309

41.7

%

$

158,928

$

111,869

42.1

%

Net income

$

41,251

$

44,750

(7.8)

%

$

77,491

$

81,800

(5.3)

%

Adjusted EBITDA

$

51,359

$

34,822

47.5

%

$

139,510

$

80,009

74.4

%

Active sellers

2,115

1,933

9.4

%

2,115

1,933

9.4

%

Active buyers

39,447

33,364

18.2

%

39,447

33,364

18.2

%

Percent mobile GMS

56

%

52

%

400

bps

55

%

51

%

400

bps

Percent international GMS

36

%

33

%

300

bps

35

%

33

%

200

bps

For information about how we define our metrics, see our Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, except for Marketplace revenue and Services revenue, which are described below.

“Our strong financial performance in the fourth quarter and full year of 2018 reflect the successful execution of our product, engineering, and marketing efforts during the period,” said Rachel Glaser, Etsy, Inc. Chief Financial Officer. “We grew and strengthened our business, returned capital to stockholders, and finished the year in a strong cash position enabling continued growth investments.”

Fourth Quarter 2018 Operational Results

  • We delivered a strong holiday shopping period in the fourth quarter. In particular, GMS from Thanksgiving through Cyber Monday, the five key shopping days, was up 30% compared to the same period last year, driven primarily by product launches, marketing, and improved landing page experiences. Among other initiatives, we improved the browsing experience by utilizing discovery badges that guide buyers throughout the marketplace and through the Etsy Gift Finder, which enabled buyers to find unique items based on personalized inputs.
  • International GMS was 36% of overall GMS, and increased 32% year-over-year on a currency-neutral basis, driven by GMS between U.S. buyers and international sellers and by our fastest growing international trade route, international domestic, which is GMS generated between a non-U.S. buyer and a non-U.S. seller both in the same country. Within the international domestic trade route, the United Kingdom, one of our six core markets, reached record GMS levels during the quarter.
  • Shipping incentives and seller education led to a meaningful improvement in the number of items with competitive shipping prices and practices. During the holiday shopping period, nearly 80% of items were available to ship domestically at competitive prices, and 33% of those items were available to ship for free.
  • Active buyers grew 18.2% year-over-year in the fourth quarter, and trailing twelve-month GMS per active buyer accelerated for the fifth consecutive quarter. Active sellers grew 9.4% year-over-year.
  • We continued to experiment with new marketing channels, including running our first ever national television campaign and other off-line advertising. Preliminary results were encouraging as visits and brand awareness both showed signs of improvement.
  • GMS from paid channels was 20% of overall GMS in the fourth quarter of 2018, expanding 400 bps year-over-year, and up 55% compared to the fourth quarter of 2017.
  • Year-over-year aggregate conversion rate increased for the fifth consecutive quarter led by strong performance across all three platforms: desktop, mobile web, and mobile app. For relative performance, in the fourth quarter of 2018, our mobile web conversion rate was about half the conversion rate on desktop, and the conversion rate on mobile app was about the same as the desktop conversion rate.
  • We expanded Promoted Listings inventory across all devices as demand for prominent placement in the Etsy marketplace continued to exceed supply. In addition to expanding inventory, we focused on increasing utilization of our sellers’ budgets and improving algorithms to drive seller return and conversion rate.

Fourth Quarter 2018 Financial Results

  • Total revenue was $200.0 million for the fourth quarter of 2018, up 46.8% year-over-year, driven by growth in both Marketplace and Services revenue.
  • Gross profit for the fourth quarter of 2018 was $142.9 million, up 55.3% year-over-year, and gross margin was 71.4%, up 390 basis points compared with 67.5% in the fourth quarter of 2017.
  • Total operating expenses were $113.4 million in the fourth quarter of 2018, up 53.8% year-over-year. The increase in operating expenses was driven primarily by digital marketing focused on driving GMS growth, and additional expense in connection with certain employee departures, including stock-based compensation expense, impacting product development.
  • Net income for the fourth quarter of 2018 was $41.3 million, with diluted earnings per share of $0.32, which benefited from the release of a valuation allowance in our foreign jurisdictions.
  • Non-GAAP Adjusted EBITDA for the fourth quarter of 2018 was $51.4 million and grew 47.5% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e., non-GAAP Adjusted EBITDA divided by revenue) was 25.7% in the fourth quarter of 2018, up 10 basis points year-over-year. Adjusted EBITDA performance was driven primarily by revenue growth related to changes in the Company’s pricing model.
  • Cash, cash equivalents, and short-term investments were $624.3 million as of December 31, 2018. Under the stock repurchase program announced in November 2018, Etsy repurchased an aggregate of approximately $45 million, or 916,083 shares of its common stock in the fourth quarter of 2018.