Disclaimer

This presentation contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements relating to our financial guidance and key drivers thereof, the timing and impact of our new and planned initiatives, including our free shipping program, anticipated launch of our unified ad platform, and our planned acquisition of Reverb, the anticipated impact of our product launches on conversion rates and our future financial results, and the timing of our full migration to Google Cloud. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “may,” “plans,” “will,” “intends,” or similar expressions and 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 fluctuation of our quarterly operating results; (2) our ability to implement our business strategy; (3) our ability to attract and retain an active and engaged community of Etsy sellers and Etsy buyers; (4) our history of operating losses;(5) macroeconomic events that are outside of our control; (6) our ability to recruit and retain employees; (7) the importance to our success of the trustworthiness of our marketplace and the connections within our community; (8) our ability to enhance our current offerings and develop new offerings to respond to the changing needs of Etsy sellers and Etsy buyers; (9) the effectiveness of our marketing efforts; (10) the effectiveness of our mobile solutions for Etsy sellers and Etsy buyers; (11) our ability to expand our business in our core geographic markets; (12) regulation in the area of privacy and protection of user data; (13) our dependence on third-party payment providers; (14) acquisitions which may prove unsuccessful or divert management attention, including our potential acquisition of Reverb; and (15) the potential misuse or disclosure of sensitive information about members of our community and the potential for cyber-attacks. These 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 March 31, 2019, 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 presentation. We disclaim any obligation to update forward-looking statements.

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Etsy, Inc. Reports Second Quarter 2019 Financial Results

August 01, 2019
Reports Year-Over-Year GMS Growth of 21.4%; Revenue Growth of 36.8%
Raises Full-Year Guidance for GMS and Revenue Growth

BROOKLYN, N.Y., Aug. 1, 2019 /PRNewswire/ -- Etsy, Inc. (NASDAQ: ETSY), the global two-sided marketplace for unique and creative goods, today announced financial results for its second quarter 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," said Josh Silverman, Etsy, Inc. Chief Executive Officer. "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."

Second Quarter 2019 Financial Summary

(in thousands except percentages; unaudited)



Three Months Ended
 June 30,


% Growth
(Decline)
Y/Y


Six Months Ended
 June 30,


% Growth
Y/Y


2019


2018



2019


2018


GMS

$

1,094,829


$

901,685


21.4%


$

2,118,857


$

1,762,760


20.2%

Revenue

$

181,095


$

132,387


36.8%


$

350,434


$

253,299


38.3%

Marketplace revenue

$

134,403


$

91,306


47.2%


$

260,533


$

179,273


45.3%

Services revenue

$

45,896


$

39,507


16.2%


$

88,067


$

72,112


22.1%

Net income

$

18,223


$

3,379


439.3%


$

49,802


$

16,346


204.7%

Adjusted EBITDA

$

39,701


$

27,695


43.4%


$

89,568


$

54,116


65.5%


















Active sellers

2,333


1,983


17.7%


2,333


1,983


17.7%

Active buyers

42,742


35,830


19.3%


42,742


35,830


19.3%

Percent mobile GMS

58%


55%


300 bps


58%


55%


300 bps

Percent international GMS

38%


34%


400 bps


38%


34%


400 bps



For information about how we define our metrics, see our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.

 

"In the second quarter of 2019 we continued our momentum, posting 37% revenue growth and 43% growth in EBITDA versus prior year," said Rachel Glaser, Etsy, Inc. Chief Financial Officer. "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."

Second Quarter 2019 Highlights

  • Product experiment velocity increased to another record high during the second quarter. Our initiatives, aligned with our Right to Win, were focused on highlighting our unique inventory, improving search and discovery, strengthening our human connection, and building a trusted brand. In the second quarter, we 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. In addition, we continued to improve our mobile app incorporating signals and nudges throughout the app experience to fuel growth on our highest converting device.
  • As of the end of the second quarter, we migrated a majority of our systems to Google Cloud, including our machine learning efforts, making progress on our two-year migration plan, which we expect to complete in early 2020.
  • During the second quarter, we launched a new national television campaign which had a positive impact on visits and purchase intent. Our market research indicates that buyers who were exposed to our TV ads were more likely to make a 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, we tested incrementality across all marketing channels, which resulted in a shift in our investment mix to higher performing channels in the second quarter. Leveraging our data and insights, some channels were paused indefinitely and we've 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 our 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, our fastest growing trade route, accelerated for the third consecutive quarter, on a constant currency basis, driven by our local efforts in our core international markets, including Germany, which continues to benefit from the DaWanda agreement.

Recent Announcements:

  • During the second quarter we completed the test and design phase to make free shipping a core part of the Etsy shopping experience. In July, we 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 U.S. buyers.
  • We plan to launch a consolidated ad platform for sellers. Beginning in the third quarter of 2019, Promoted Listings, our 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, subject to certain adjustments with respect to cash, debt, working capital, transaction expenses and the value of equity awards to be granted in connection with the transaction. The transaction is expected to close in late third quarter or early fourth quarter of 2019, subject to Hart-Scott-Rodino review and other customary closing conditions. Please refer to the Form 8-K filed on July 22, 2019 for additional details.

Second Quarter 2019 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 we believe is a tailwind to our 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 our 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 our 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.

2019 Financial Guidance




2019 Guidance


2019 Revised Guidance




May 8, 2019


August 1, 2019


GMS Year-Over-Year Growth


18-21%


20-22%




~$4.6B - $4.8B


~$4.7B - $4.8B


Revenue Year-Over-Year Growth


30-32%


32-34%




~$785M - $797M


~$797M - $809M


Adjusted EBITDA Margin*


23-25%


22-24%




~$182M - $198M


~$177M - $193M


*      Assumes the midpoint of our revenue guidance.

For a summary of the key items that we expect to impact our guidance, please read our Q2 investor presentation that is available on Etsy's investor relations website, investors.etsy.com. Etsy's revised 2019 guidance does not give effect to our planned acquisition of Reverb.

Etsy is not able, at this time, to provide GAAP targets for net income margin for 2019 because of the unreasonable effort of estimating certain items that are excluded from non-GAAP Adjusted EBITDA margin, including, for example, provision or benefit for income taxes and foreign exchange gain or loss, the effect of which may be significant.

Webcast and Conference Call Information

Etsy will host a webcast to discuss these results at 5:00 p.m. ET today. To access the live webcast and accompanying slide deck, please visit the Etsy Investor Relations website, investors.etsy.com, and go to the Investor Events section. To join the call by phone, please dial 1-855-852-1946 (toll free) or 1-720-634-2903 (toll) and use the passcode 6777029. A replay will be available through the same link following the conference call, or by dialing (toll free) 1-855-859-2056 or 1-404-537-3406 (toll) with the passcode 6777029 starting at 8:00 p.m. ET tonight through August 15, 2019.

About Etsy

Etsy, Inc. is the global two-sided marketplace for unique and creative goods. Our mission is to "Keep Commerce Human," and we're committed to using the power of business and technology to strengthen communities and empower people around the world. We connect millions of buyers and sellers from nearly every country in the world. 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 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
ir@etsy.com

Gabriel Ratcliff, Sr. Manager, Investor Relations
ir@etsy.com

Media Relations Contact:

Kelly Clausen, Director, Corporate Communications
press@etsy.com

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 and key drivers thereof, the timing and impact of our new and planned initiatives, including our free shipping program, the anticipated launch of a unified ad platform, our planned acquisition of Reverb, and the timing of our full migration to Google cloud. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "will," or similar expressions and 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 fluctuation of our quarterly operating results; (2) our ability to implement our business strategy; (3) our ability to attract and retain an active and engaged community of Etsy sellers and Etsy buyers; (4) our history of operating losses; (5) macroeconomic events that are outside of our control; (6) our ability to recruit and retain employees; (7) the importance to our success of the trustworthiness of our marketplace and the connections within our community; (8) our ability to enhance our current offerings and develop new offerings to respond to the changing needs of Etsy sellers and Etsy buyers; (9) the effectiveness of our marketing efforts; (10) the effectiveness of our mobile solutions for Etsy sellers and Etsy buyers; (11) our ability to expand our business in our core geographic markets; (12) regulation in the area of privacy and protection of user data; (13) our dependence on third-party payment providers;  (14) acquisitions that may prove unsuccessful or divert management attention, including our planned acquisition of Reverb; and (15) the potential misuse or disclosure of sensitive information about members of our community and the potential for cyber-attacks. These 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 March 31, 2019, 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
June 30, 
 2019


As of
December 31, 
 2018

ASSETS




Current assets:




Cash and cash equivalents

$

359,159



$

366,985


Short-term investments

274,673



257,302


Accounts receivable, net

10,585



12,244


Prepaid and other current assets

34,647



22,686


Funds receivable and seller accounts

64,589



21,072


Total current assets

743,653



680,289


Restricted cash

5,341



5,341


Property and equipment, net

128,409



120,179


Goodwill

37,342



37,482


Intangible assets, net

33,142



34,589


Deferred tax assets

23,319



23,464


Long-term investments

25,438




Other assets

25,131



507


Total assets

$

1,021,775



$

901,851


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

20,504



$

26,545


Accrued expenses

55,687



49,158


Finance lease obligations—current

9,306



3,884


Funds payable and amounts due to sellers

64,589



21,072


Deferred revenue

8,011



7,478


Other current liabilities

8,413



3,925


Total current liabilities

166,510



112,062


Finance lease obligations—net of current portion

57,409



2,095


Deferred tax liabilities

32,642



30,455


Facility financing obligation



59,991


Long-term debt, net

284,011



276,486


Other liabilities

38,902



19,864


Total liabilities

579,474



500,953


Total stockholders' equity

442,301



400,898


Total liabilities and stockholders' equity

$

1,021,775



$

901,851


 

 

Etsy, Inc.

Condensed Consolidated Statements of Operations

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




Three Months Ended
 June 30,


Six Months Ended
 June 30,


2019


2018


2019


2018

Revenue

$

181,095



$

132,387



$

350,434



$

253,299


Cost of revenue

58,605



45,409



111,263



86,704


Gross profit

122,490



86,978



239,171



166,595


Operating expenses:








Marketing

45,994



28,941



81,438



55,135


Product development

28,765



23,568



53,712



44,289


General and administrative

29,883



21,707



54,530



40,611


Total operating expenses

104,642



74,216



189,680



140,035


Income from operations

17,848



12,762



49,491



26,560


Other expense, net

(1,479)



(8,137)



(1,685)



(8,954)


Income before income taxes

16,369



4,625



47,806



17,606


Benefit (provision) for income taxes

1,854



(1,246)



1,996



(1,260)


Net income

$

18,223



$

3,379



$

49,802



$

16,346


Net income per share attributable to common stockholders:








Basic

$

0.15



$

0.03



$

0.42



$

0.14


Diluted

$

0.14



$

0.03



$

0.38



$

0.13


Weighted-average common shares outstanding:








Basic

120,198,526



119,450,194



119,848,289



120,819,201


Diluted

130,807,743



125,551,759



130,463,025



126,186,664


 

 

Etsy, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands; unaudited)




Six Months Ended
 June 30,


2019


2018

Cash flows from operating activities




Net income

$

49,802



$

16,346


Adjustments to reconcile net income to net cash provided by operating activities:




Stock-based compensation expense

18,919



15,071


Depreciation and amortization expense

19,952



12,677


Bad debt expense

4,146



1,961


Foreign exchange (gain) loss

(1,240)



2,849


Other non-cash losses, net

6,314



3,914


Deferred income taxes

(1,996)



(377)


Changes in operating assets and liabilities

(14,603)



14,320


Net cash provided by operating activities

81,294



66,761


Cash flows from investing activities




Cash paid for asset acquisition



(35,323)


Purchases of property and equipment

(3,747)



(304)


Development of internal-use software

(4,669)



(8,146)


Purchases of marketable securities

(305,391)



(234,149)


Sales of marketable securities

265,852



50,472


Net cash used in investing activities

(47,955)



(227,450)


Cash flows from financing activities




Payment of tax obligations on vested equity awards

(16,157)



(7,898)


Repurchase of stock

(27,492)



(89,661)


Proceeds from exercise of stock options

7,840



10,725


Proceeds from issuance of convertible senior notes



345,000


Payment of debt issuance costs

(1,392)



(9,561)


Purchase of capped call



(34,224)


Payments on finance lease obligations

(5,475)



(3,421)


Payments on facility financing obligation



(5,469)


Other financing, net

2,072



1,023


Net cash (used in) provided by financing activities

(40,604)



206,514


Effect of exchange rate changes on cash

(561)



(3,447)


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

(7,826)



42,378


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

372,326



320,783


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

$

364,500



$

363,161


 

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 for the periods presented below is as follows:


Quarter-to-Date Period Ended


Year-to-Date Period Ended


As Reported


Currency-
Neutral


FX Impact


As Reported


Currency-
Neutral


FX Impact

June 30, 2019

21.4%


22.8%


(1.4)%


20.2%


21.7%


(1.5)%

March 31, 2019

18.9%


20.6%


(1.7)%


18.9%


20.6%


(1.7)%

December 31, 2018

22.3%


23.1%


(0.8)%


20.8%


20.4%


0.4%

September 30, 2018

20.4%


20.8%


(0.4)%


20.2%


19.2%


1.0%

June 30, 2018

20.4%


19.3%


1.1%


20.1%


18.5%


1.6%




















Non-GAAP Financial Measures

Adjusted EBITDA

In this press release, we provide Adjusted EBITDA, a non-GAAP financial measure that represents our net income adjusted to exclude: interest and other non-operating expense, net; (benefit) provision for income taxes; depreciation and amortization; stock-based compensation expense; foreign exchange loss (gain); acquisition-related expenses; and restructuring and other exit expense (income). Below is a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA in this press release because it is a key measure 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 platform.

We believe that Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business as it removes the impact of certain non-cash items and certain variable charges.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

  • Adjusted EBITDA does not reflect other non-operating expenses, net of other non-operating income, including net interest expense;
  • Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
  • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
  • Adjusted EBITDA does not consider the impact of stock-based compensation expense;
  • Adjusted EBITDA does not consider the impact of foreign exchange loss (gain);
  • Adjusted EBITDA does not reflect acquisition-related expenses;
  • Adjusted EBITDA does not consider the impact of restructuring and other exit expense (income); and
  • other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

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

 

Reconciliation of Net Income to Adjusted EBITDA

 

(Unaudited)




Three Months Ended
 June 30,


Six Months Ended
 June 30,


2019


2018


2019


2018










(in thousands)

Net income

$

18,223


$

3,379


$

49,802


$

16,346

Excluding:












Interest and other non-operating expense, net (1)

1,287


3,687


2,555


6,354

(Benefit) provision for income taxes

(1,854)


1,246


(1,996)


1,260

Depreciation and amortization (1)

9,810


6,357


19,952


12,677

Stock-based compensation expense (2)

10,837


8,617


18,919


15,071

Foreign exchange loss (gain) (3)

192


4,450


(870)


2,600

Acquisition-related expenses (4)

1,206



1,206


Restructuring and other exit income


(41)



(192)

Adjusted EBITDA

$

39,701


$

27,695


$

89,568


$

54,116






(1)  Included in interest and depreciation expense amounts above, are interest and depreciation expense related to our headquarters lease. As part of 
      the adoption of ASU 2016-02—Leases in the first quarter of 2019, we now account for our headquarters as a financing lease. Previously, we accounted 
      for our headquarters under build-to-suit accounting requirements. In the three and six months ended June 30, 2019 and 2018, those amounts are as follows:







Three Months Ended
 June 30,


Six Months Ended
 June 30,


2019


2018


2019


2018










(in thousands)

Interest expense

$

678



$

2,249



$

1,373



$

4,499


Depreciation

2,197



819



4,395



1,638







(2)  Total stock-based compensation expense included in the Consolidated Statements of Operations is as follows:







Three Months Ended
 June 30,


Six Months Ended
 June 30,


2019


2018


2019


2018










(in thousands)

Cost of revenue

$

1,456



$

927



$

2,555



$

1,473


Marketing

723



699



1,354



1,177


Product development

5,294



4,025



8,813



6,664


General and administrative

3,364



2,966



6,197



5,757


Total stock-based compensation expense

$

10,837



$

8,617



$

18,919



$

15,071



(3)  Foreign exchange loss (gain) is primarily driven by the U.S. Dollar to Euro exchange rate fluctuations on the Company's intercompany and 
      other non-functional currency balances.


(4)  Acquisition-related expenses related to our planned acquisition of Reverb.

 

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SOURCE Etsy, Inc.

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