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Subjects: ERN, ERP

Etsy, Inc. Reports Third Quarter 2023 Results


BROOKLYN, N.Y., Nov. 1, 2023 /PRNewswire/ -- Etsy, Inc. (NASDAQ: 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, 2023.

"Etsy's consolidated results were in line with expectations for modest top line growth and very strong profitability," said Josh Silverman, Etsy, Inc. Chief Executive Officer. "While we are undoubtedly operating in a challenging environment for spending on consumer discretionary items, we believe that we are at least holding our share gains in our top categories. We are making great progress, through focused and impactful product launches and marketing programs, to highlight Etsy's high quality merchandise, at great value, that is reliable and convenient, and believe that these efforts will enable us to build buyer consideration. We believe that our TAM is enormous, our market share remains small, our value-proposition is highly differentiated, and we are solving for something no one else is - Keeping Commerce Human."

Third quarter 2023 performance highlights include:

Third Quarter 2023 Financial Summary
(in thousands, except percentages; unaudited)

The financial results of Elo7 have been included in our consolidated financial results until August 10, 2023 (the date of sale). The unaudited GAAP and non-GAAP financial measures and key operating metrics we use are:


Three Months Ended 

 September 30,


% Growth

(Decline)

Y/Y


Nine Months Ended 

 September 30,


% (Decline)

Growth

Y/Y


2023


2022



2023


2022


GMS (1)

$ 3,039,930


$ 3,002,450


1.2 %


$ 9,153,792


$ 9,284,614


(1.4) %

Revenue

$    636,302


$    594,469


7.0 %


$ 1,906,055


$ 1,758,870


8.4 %

Marketplace revenue

$    460,922


$    443,489


3.9 %


$ 1,381,395


$ 1,310,729


5.4 %

Services revenue

$    175,380


$    150,980


16.2 %


$    524,660


$    448,141


17.1 %

Gross profit

$    447,475


$    420,068


6.5 %


$ 1,333,137


$ 1,240,053


7.5 %

Operating expenses

$    358,919


$ 1,374,848


(73.9) %


$ 1,168,754


$ 2,037,957


(42.7) %

Net income (loss)

$      87,850


$  (963,068)


109.1 %


$    224,302


$  (803,836)


127.9 %

Net income (loss) margin

13.8 %


(162.0) %


    17,580  bps


11.8 %


(45.7) %


      5,750  bps

Adjusted EBITDA (Non-GAAP)

$    182,219


$    167,761


8.6 %


$    518,797


$    489,663


5.9 %

Adjusted EBITDA margin (Non-GAAP)

28.6 %


28.2 %


           40  bps


27.2 %


27.8 %


         (60)  bps













Active sellers (2)

8,802


7,396


19.0 %


8,802


7,396


19.0 %

Active buyers (2)

97,343


94,149


3.4 %


97,343


94,149


3.4 %

Percent mobile GMS

68 %


67 %


         100 bps


67 %


66 %


         100 bps

Percent GMS ex-U.S. Domestic (1)

45 %


43 %


         200  bps


45 %


44 %


         100  bps



(1)

Consolidated GMS for the three and nine months ended September 30, 2023 includes Etsy marketplace GMS of $2.7 billion and $8.0 billion, respectively. Percent GMS ex-U.S. domestic for the Etsy marketplace for both the three and nine months ended September 30, 2023 was 47%.



(2)

Consolidated active sellers and active buyers includes Etsy marketplace active sellers and active buyers of 6.7 million and 91.6 million, respectively, as of September 30, 2023.



To provide consistency with our calculation of GMS, beginning in the first quarter of 2023, we have reported our mobile GMS, GMS ex-U.S. domestic, and Non-U.S. domestic GMS as a percentage of GMS net of refunds. We did not apply this change to prior periods as the impact was immaterial to such periods. For information about how we otherwise define our metrics, see our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

"It's encouraging to see many of our Etsy marketplace GMS metrics improve during the third quarter," said Rachel Glaser, Chief Financial Officer. "Consolidated top line revenue growth of 7.0% was driven primarily by continued strength from Etsy Ads and payments. Even with significant investments in product and marketing, our consolidated adjusted EBITDA margin expanded on a year-over-year basis to 28.6%, our highest level since the fourth quarter of 2021."

Third Quarter 2023 Operating Highlights

Etsy

Etsy marketplace's product roadmap remains aligned with our long-term 'Right to Win' strategy, which is focused on delivering best-in-class search and discovery, improving human connections between buyers and sellers, making Etsy a trusted brand, and highlighting our sellers' unique items. Select third quarter 2023 product development, marketing, and other operational highlights are outlined below.

Product Highlights

Making Etsy More Curated and Organized

Making Shopping on Etsy More Reliable and Joyful

Helping Sellers Sustainably Expand their Business

Marketing Highlights

Impact Highlights

Subsidiary Marketplace Highlights

Reverb

Reverb enhanced the buyer experience, expanding search filters in select categories, as well as adding new category filters and attributes to help buyers find the perfect piece of gear. Reverb made checkout easier and faster, which drove an increase in GMS. Reverb also continued tofocus on deals and affordability, introducing new negotiation tools, providing greater guidance on pricing competitively, and increasing prominence of promotions and price drops to buyers.

Depop

Depop continued to focus on product development velocity during the quarter, while maintaining its overall win rate. Meaningful product wins included enhanced search relevance with new rankings and personalization features, as well as improved personalized recommendations. The 'I got it on Depop' campaign encouragingly delivered strong brand awareness. Depop also expanded its performance marketing feeds to additional listings, driving a solid increase in paid marketing contribution. Depop enabled a 'buy now, pay later' option in the United Kingdom and, in an effort to provide a streamlined and efficient experience for buyers and sellers, announced plans to fully transition to Depop Payments.

Financial Guidance and Outlook

GMS for Q4 2023 is currently estimated to decline in the low-single-digit range on a year-over-year basis. However, if trends worsen, that could become a mid-single-digit decline, and if trends improve GMS could be flat or even up slightly year-over-year.

We estimate Q4 2023 take rate to be approximately 20.8%, down slightly on a sequential basis due to normal seasonality. This can be used to estimate revenue range for the quarter.

Adjusted EBITDA margin for Q4 2023 is currently estimated to be between 26-27%.

Please note that our guidance assumes currency exchange rates remain unchanged at current levels.

With respect to our expectations under "Financial Guidance and Outlook" above, reconciliation of Adjusted EBITDA margin guidance to the closest corresponding GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity, and low visibility with respect to the charges excluded from Adjusted EBITDA; in particular, stock-based compensation expense, foreign exchange gain, acquisition and divestiture related expenses; and other non-recurring expenses can have unpredictable fluctuations based on unforeseen activity that is out of our control and/or cannot reasonably be predicted.

Regarding the company's outlook, Mr. Silverman commented, "There's no doubt that this is an incredibly challenging environment for spending on consumer discretionary items. It's therefore important to acknowledge that this volatile macro climate will make it challenging for us to grow this quarter. While there are many things we can't control, there is still a lot we can ? so we are obsessively focused on those. All of us at Etsy feel a great responsibility to deliver profitable growth ? growth for our millions of sellers, for our shareholders, and all of our stakeholders. Our team is working passionately and with the highest level of urgency; and I'm more excited about the current roadmap and the progress we've made this year, than at any time in my tenure. We are confident we are working on areas that will positively impact Etsy in the months and years ahead. We are keeping our eye on the prize and look forward to getting back to strong growth again as we move through this cycle."

Ms. Glaser added, "We are guiding to a consolidated adjusted EBITDA margin of 26-27%, with seasonally higher marketing spend and a more competitive advertising landscape being the primary drivers of the sequential decline. Core Etsy marketplace margin implied in our guidance approaches our previously provided long-term target of 30%, and consolidated EBITDA dollars are expected to be up sequentially. In fact, on a full year basis for the Etsy marketplace, we expect to finish the year just a bit shy of being a 'rule of 40' company, which many see as best-in-class performance."

Webcast and Conference Call Information

Etsy will host a video webcast conference call to discuss these results at 5:00 p.m. Eastern Time today, which will be live-streamed via our Investor Relations website (investors.etsy.com) under the Events section. A copy of the earnings call presentation will also be posted to our website.

A replay of the video webcast will be available through the same link following the conference call starting at 8:00 p.m. Eastern Time this evening, for at least three months thereafter.

About Etsy

Etsy, Inc. operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world. These marketplaces share a mission to "Keep Commerce Human," and we're committed to using the power of business and technology to strengthen communities and empower people. Our primary marketplace, Etsy.com, is the global destination for unique and creative goods. Buyers come to Etsy to be inspired and delighted by items that are crafted and curated by creative entrepreneurs. For sellers, we offer a range of tools and services that address key business needs.

Etsy, Inc.'s "House of Brands" portfolio also includes fashion resale marketplace Depop, and musical instrument marketplace Reverb. Each Etsy, Inc. marketplace operates independently, while benefiting from shared expertise in product, marketing, technology, and customer support.

Etsy was founded in 2005 and is headquartered in Brooklyn, New York.

Etsy has used, and intends to continue using, its Investor Relations website and the Etsy News Blog (blog.etsy.com/news) to disclose material non-public information and to comply with its disclosure obligations under Regulation FD. Accordingly, you should monitor our investor relations website and the Etsy News Blog in addition to following our press releases, SEC filings, and public conference calls and webcasts.

Investor Relations Contact:

Deb Wasser, Vice President, Investor Relations and ESG Engagement
[email protected]

Jessica Schmidt, Sr. Director, Investor Relations
[email protected]

Media Relations Contact:

Kelly Clausen, Sr. Director, Communications and Strategic Partnership
[email protected]

Cautionary Statement Regarding Forward-Looking Statements

This press release contains or references forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements relating to our financial guidance for the fourth quarter of 2023 and underlying assumptions; our ability to build buyer consideration and gain a greater share of our total available market opportunity; the impact of our "Right to Win" strategy and our product development and marketing goals; our ability to get Etsy back to strong growth again as we move through this cycle; our investments to re-accelerate our top line and gain market share; our Etsy marketplace margin and consolidated EBITDA dollar targets; and our aspiration regarding 'rule of 40' performance. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as "aim," "anticipate," "believe," "could," "enable," "estimate," "expect," "goal," "intend," "may," "outlook," "plan," "potential," "target," "will," or similar expressions and derivative forms and/or the negatives of those words.

Forward-looking statements involve substantial risks and uncertainties that may cause actual results to differ materially from those that we expect. These risks and uncertainties include: (1) the level of demand for our services or products sold in our marketplaces and our ability to support our recent growth; (2) the importance to our success of the trustworthiness of our marketplaces and our ability to attract and retain active and engaged communities of buyers and sellers; (3) the fluctuation of our quarterly operating results; (4) our failure to meet our publicly announced guidance or other expectations; (5) if we or our third-party providers are unable to protect against technology vulnerabilities, service interruptions, security breaches, or other cyber incidents; (6) our dependence on continued and unimpeded access to third-party services, platforms, and infrastructure; (7) macroeconomic events that are outside of our control; (8) operational and compliance risks related to our payments systems; (9) our ability to recruit and retain employees; (10) our ability to compete effectively; (11) our ability to enhance our current offerings and develop new offerings to respond to the changing needs of sellers and buyers; (12) our ability to demonstrate progress against our environmental, social, and governance Impact strategy; (13) our efforts to expand internationally; (14) acquisitions that may prove unsuccessful or divert management attention; (15) regulation in the area of privacy and protection of user data; and (16) litigation and regulatory matters, including intellectual property claims. These and other risks and uncertainties are more fully described in our filings with the Securities and Exchange Commission, including in the section entitled "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, and subsequent reports that we file with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, we cannot guarantee future results, levels of activity, performance, achievements, or events and circumstances reflected in the forward-looking statements will occur.

Forward-looking statements represent our beliefs and assumptions only as of the date of this press release. We disclaim any obligation to update forward-looking statements.

Etsy, Inc.

Condensed Consolidated Balance Sheets

(in thousands; unaudited)



As of
September 30,

2023


As of
December 31,

2022

ASSETS




Current assets:




Cash and cash equivalents

$                     741,958


$                     921,278

Short-term investments

234,930


250,413

Accounts receivable, net

19,410


27,888

Prepaid and other current assets

125,605


80,203

Funds receivable and seller accounts

221,958


233,961

Total current assets

1,343,861


1,513,743

Restricted cash

?


5,341

Property and equipment, net

245,806


249,744

Goodwill

137,461


137,724

Intangible assets, net

452,881


535,406

Deferred tax assets

146,380


121,506

Long-term investments

76,600


29,137

Other assets

46,208


42,360

Total assets

$                  2,449,197


$                  2,634,961

LIABILITIES AND STOCKHOLDERS' DEFICIT




Current liabilities:




Accounts payable

$                       14,150


$                       28,757

Accrued expenses

271,973


331,234

Finance lease obligations?current

5,221


4,731

Funds payable and amounts due to sellers

221,958


233,961

Deferred revenue

14,984


14,008

Other current liabilities

20,531


19,064

Total current liabilities

548,817


631,755

Finance lease obligations?net of current portion

101,114


105,699

Deferred tax liabilities

25,496


44,735

Long-term debt, net

2,282,751


2,279,640

Other liabilities

113,547


120,406

Total liabilities

3,071,725


3,182,235

Total stockholders' deficit

(622,528)


(547,274)

Total liabilities and stockholders' deficit

$                  2,449,197


$                  2,634,961

 

Etsy, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts; unaudited)



Three Months Ended 

 September 30,


Nine Months Ended 

 September 30,


2023


2022


2023


2022

Revenue

$       636,302


$       594,469


$    1,906,055


$    1,758,870

Cost of revenue

188,827


174,401


572,918


518,817

Gross profit

447,475


420,068


1,333,137


1,240,053

Operating expenses:








Marketing

160,936


147,242


498,120


465,590

Product development

113,932


108,040


351,844


299,611

General and administrative

84,051


74,544


250,699


227,734

Asset impairment charges

?


1,045,022


68,091


1,045,022

Total operating expenses

358,919


1,374,848


1,168,754


2,037,957

Income (loss) from operations

88,556


(954,780)


164,383


(797,904)

Other income, net

8,411


5,763


19,269


8,036

Income (loss) before income taxes

96,967


(949,017)


183,652


(789,868)

(Provision) benefit for income taxes

(9,117)


(14,051)


40,650


(13,968)

Net income (loss)

$         87,850


$     (963,068)


$       224,302


$     (803,836)

Net income (loss) per share attributable to common stockholders:








Basic

$            0.72


$           (7.62)


$            1.82


$           (6.33)

Diluted

$            0.64


$           (7.62)


$            1.62


$           (6.33)

Weighted-average common shares outstanding:








Basic

121,807,908


126,349,250


123,341,417


126,985,731

Diluted

138,890,567


126,349,250


141,046,041


126,985,731

 

Etsy, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands; unaudited)



Nine Months Ended 

 September 30,


2023


2022

Cash flows from operating activities




Net income (loss)

$                     224,302


$                   (803,836)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:




Stock-based compensation expense

216,082


166,533

Depreciation and amortization expense

68,290


73,908

Provision for expected credit losses

14,390


7,621

Foreign exchange gain

(4,113)


(17,585)

Deferred benefit for income taxes

(45,255)


(25,955)

Loss on sale of business

2,630


?

Asset impairment charges

68,091


1,045,022

Other non-cash expense, net

327


6,519

Changes in operating assets and liabilities (net of impact of sale of business)

(134,336)


(60,365)

Net cash provided by operating activities

410,408


391,862

Cash flows from investing activities




Cash paid for intangible assets

(12)


(6,400)

Purchases of property and equipment

(7,740)


(8,351)

Development of internal-use software

(19,594)


(16,912)

Purchases of investments

(288,226)


(205,841)

Sales and maturities of investments

261,589


207,568

Net cash used in investing activities

(53,983)


(29,936)

Cash flows from financing activities




Payment of tax obligations on vested equity awards

(58,008)


(48,018)

Repurchase of stock

(483,987)


(275,308)

Proceeds from exercise of stock options

8,448


8,212

Payment of debt issuance costs

(2,215)


(25)

Settlement of convertible senior notes

(90)


(33)

Payments on finance lease obligations

(4,723)


(4,755)

Other financing, net

(259)


(2,483)

Net cash used in financing activities

(540,834)


(322,410)

Effect of exchange rate changes on cash

(252)


(29,722)

Net (decrease) increase in cash, cash equivalents, and restricted cash

(184,661)


9,794

Cash, cash equivalents, and restricted cash at beginning of period

926,619


785,537

Cash, cash equivalents, and restricted cash at end of period

$                     741,958


$                     795,331

Currency-Neutral GMS Growth

We calculate currency-neutral GMS growth by translating current period GMS for goods sold that were listed in non-U.S. dollar currencies into U.S. dollars using prior year foreign currency exchange rates.

As reported and currency-neutral GMS growth / (decline) for the periods presented below are as follows:


Quarter-to-Date Period Ended


Year-to-Date Period Ended


As Reported


Currency-
Neutral


FX Impact


As Reported


Currency-
Neutral


FX Impact

September 30, 2023

1.2 %


(0.1) %


1.3 %


(1.4) %


(1.1) %


(0.3) %

September 30, 2022

(3.3) %


0.7 %


(4.0) %


(0.1) %


2.7 %


(2.8) %

Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

In this press release, we provide Adjusted EBITDA, a non-GAAP financial measure that represents our net income (loss) adjusted to exclude: interest and other non-operating (income) expense, net; provision (benefit) for income taxes; depreciation and amortization; stock-based compensation expense; foreign exchange gain; acquisition and divestiture related expenses; asset impairment charges; and loss on sale of business. We also provide Adjusted EBITDA margin, a non-GAAP financial measure that presents Adjusted EBITDA divided by revenue. Below is a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA and Adjusted EBITDA margin because they are key measures used by our management and Board of Directors to evaluate our operating performance and trends, allocate internal resources, prepare and approve our annual budget, develop short- and long-term operating plans, determine incentive compensation, and assess the health of our business. As our Adjusted EBITDA increases, we are able to invest more in our platforms.

We believe that Adjusted EBITDA and Adjusted EBITDA margin can provide useful measures for period-to-period comparisons of our business as they remove the impact of certain non-cash items and certain variable charges.

Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA margin alongside other financial performance measures, including net income (loss), revenue, and our other GAAP results.

Reconciliation of Net Income (Loss) to Adjusted EBITDA and the Calculation of Adjusted EBITDA Margin

(in thousands, except percentages; unaudited)



Three Months Ended 

 September 30,


Nine Months Ended 

 September 30,


2023


2022


2023


2022

Net income (loss)

$         87,850


$     (963,068)


$       224,302


$     (803,836)

Excluding:








Interest and other non-operating (income) expense, net

(5,430)


230


(17,053)


6,077

Provision (benefit) for income taxes

9,117


14,051


(40,650)


13,968

Depreciation and amortization

22,172


24,127


68,290


73,908

Stock-based compensation expense (1)

70,118


52,905


216,082


166,533

Foreign exchange gain

(5,611)


(5,993)


(4,846)


(14,113)

Acquisition and divestiture related expenses

1,373


487


1,951


2,104

Asset impairment charges

?


1,045,022


68,091


1,045,022

Loss on sale of business

2,630


?


2,630


?

Adjusted EBITDA

$       182,219


$       167,761


$       518,797


$       489,663

Divided by:








Revenue

$       636,302


$       594,469


$    1,906,055


$    1,758,870

Adjusted EBITDA margin

28.6 %


28.2 %


27.2 %


27.8 %


(1)  Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for the periods presented below is as follows:



Three Months Ended 

 September 30,


Nine Months Ended 

 September 30,


2023


2022


2023


2022

Cost of revenue

$             8,105


$             6,089


$           23,522


$           16,545

Marketing

5,763


5,083


17,132


14,552

Product development

37,842


34,106


112,771


88,656

General and administrative

18,408


7,627


62,657


46,780

Stock-based compensation expense 

$           70,118


$           52,905


$         216,082


$         166,533

  

SOURCE Etsy


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