Etsy, Inc. Reports First Quarter 2019 Financial Results
BROOKLYN, N.Y., May 8, 2019 /PRNewswire/ -- Etsy, Inc. (NASDAQ: ETSY), the global two-sided marketplace for unique and creative goods, today announced financial results for its first quarter ended March 31, 2019.
"We are pleased to report another quarter of strong growth," said Josh Silverman, Etsy, Inc. Chief Executive Officer. "We began the year with a fresh slate of product initiatives and our teams' development velocity surged to an all-time high, delivering healthy GMS growth during the quarter. We are focused on unlocking Etsy's long-term growth opportunity by bolstering best-in-class search and discovery, leveraging human connections, building a trusted brand, and showcasing our vast collection of unique items."
First Quarter 2019 Financial Summary
(in thousands except percentages; unaudited)
Three Months Ended % Growth
March 31, Y/Y
2019 2018
GMS $
1,024,028 $
861,075 18.9
%
Revenue $
169,339 $
120,912 40.1
%
Marketplace $
126,130 $
87,967 43.4
revenue %
Services revenue $
42,171 $
32,605 29.3
%
Net income $
31,579 $
12,967 143.5
%
Adjusted EBITDA $
49,867 $
26,421 88.7
%
Active sellers 2,227 1,970 13.0
%
Active buyers 41,029 34,693 18.3
%
Percent mobile
GMS 58
% 54
% 400
bps
Percent
international
GMS 38
% 35
% 300
bps
For information about how we define our metrics, see our Annual Report on Form 10-K for the year ended December 31, 2018.
"During the first quarter of 2019 we temporarily paused some of our marketing investments in order to closely test incrementality of our less mature channels and refine our attribution models," said Rachel Glaser, Etsy, Inc. Chief Financial Officer. "Profitability in the quarter was especially high because of this marketing recalibration. We expect to leverage our insights, while continuing to test new channels, including television, to maximize growth and profitability."
First Quarter 2019 Highlights
-- Product experiment velocity increased to an all-time high during the
first quarter. Our initiatives focused on search relevance, listing
quality and landing page experience which collectively improved the
customer experience and fueled GMS growth.
-- We continued to develop a search and discovery experience that unlocks
the value of the unique items in our marketplace. We improved search
relevance by incorporating the item price as one of the many factors
that impact listing prominence. We focused on our collection of unique
items by enhancing the image quality for listings on desktop, our
largest channel by device, which is intended to convert more visits into
purchases.
-- We began serving our search traffic from Google Cloud, a major milestone
in our search infrastructure and our two-year migration plan, which we
expect to be complete in early 2020.
-- GMS per active buyer on a trailing 12-month basis was up nearly 2% and
has generated growth of nearly 2% or higher for the past three
consecutive quarters, which we believe demonstrates continued progress
in improving frequency.
-- International GMS was 38% of overall GMS, and increased 33%
year-over-year on a currency-neutral basis, Etsy's highest international
GMS growth since the beginning of 2015. International GMS growth was
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.
-- Active buyers grew 18.3% year-over-year in the first quarter, despite
our reduction in marketing spend across certain channels. Active sellers
grew 13.0% year-over-year.
-- GMS from paid channels was 15% of overall GMS in the first quarter of
2019, flat compared to the first quarter of 2018 and contracting 500 bps
compared to the fourth quarter of 2018, due to our reduction in
marketing spend across certain channels.
-- Etsy began offsetting 100% of carbon emissions generated by shipping,
which represent 98% of Etsy's total emissions.
First Quarter 2019 Financial Results
-- Total revenue was $169.3 million for the first quarter of 2019, up 40.1%
year-over-year, driven by growth in both Marketplace and Services
revenue.
-- Gross profit for the first quarter of 2019 was $116.7 million, up 46.6%
year-over-year, and gross margin was 68.9%, up 310 basis points compared
with 65.8% in the first quarter of 2018. Gross margin was impacted by
expenses related to our on-going migration to the cloud.
-- Total operating expenses were $85.0 million in the first quarter of
2019, up 29.2% year-over-year. The increase in operating expenses was
driven primarily by marketing expense and an increase in headcount
related to product development.
-- Net income for the first quarter of 2019 was $31.6 million, with diluted
earnings per share of $0.24.
-- Non-GAAP Adjusted EBITDA for the first quarter of 2019 was $49.9 million
and grew 88.7% year-over-year. Non-GAAP Adjusted EBITDA margin (i.e.,
Adjusted EBITDA divided by revenue) was 29.4%, in the first quarter of
2019 up 750 basis points year-over-year. Adjusted EBITDA performance was
driven primarily by year-over-year revenue growth related to changes in
our pricing model and an intentional pull back in marketing spend
compared to the fourth quarter of 2018.
-- Cash, cash equivalents, and short-term investments were $622.1 million
as of March 31, 2019. Under the stock repurchase program announced in
November 2018, Etsy repurchased an aggregate of approximately $27.5
million, or 532,412 shares of its common stock, in the first quarter of
2019.
2019 Financial Guidance
We are raising 2019 guidance for GMS and revenue growth, and reiterating our guidance range for Adjusted EBITDA margin.
2019 Guidance 2019 Revised Guidance
February 25, 2019 May 8, 2019
GMS
Year-
Over-
Year
Growth 17-20% 18-21%
~$4.6B - $4.7B
~$4.6B - $4.8B
Revenue
Year-
Over-
Year
Growth 29-32% 30-32%
~$779M - $797M
~$785M - $797M
Adjusted
EBITDA
Margin* 23-25% 23-25%
~$181M - $197M
~$182M - $198M
* Assumes the midpoint of our revenue guidance.
For a summary of the key items that we expect to impact our guidance, please read our Q1 investor presentation that is available on Etsy's investor relations website, investors.etsy.com.
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 2870759. 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 2870759 starting at 8:00 p.m. ET tonight through May 22, 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. 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; and (14) 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 Annual Report on Form 10-K for the year ended December 31, 2018, 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 As of
March 31, December 31,
2019 2018
---
ASSETS
Current assets:
Cash and cash equivalents $
345,674 $
366,985
Short-term investments 276,432 257,302
Accounts receivable, net 10,789 12,244
Prepaid and other current
assets 26,859 22,686
Funds receivable and seller
accounts 64,247 21,072
Total current assets 724,001 680,289
Restricted cash 5,341 5,341
Property and equipment, net 131,650 120,179
Goodwill 37,034 37,482
Intangible assets, net 33,839 34,589
Deferred tax assets 23,000 23,464
Other assets 26,303 507
Total assets $
981,168 $
901,851
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $
17,325 $
26,545
Accrued expenses 40,123 49,158
Finance lease obligations-
current 9,927 3,884
Funds payable and amounts due
to sellers 64,247 21,072
Deferred revenue 7,787 7,478
Other current liabilities 9,266 3,925
Total current liabilities 148,675 112,062
Finance lease obligations-net
of current portion 59,610 2,095
Deferred tax liabilities 32,637 30,455
Facility financing obligation - 59,991
Long-term debt, net 280,226 276,486
Other liabilities 40,007 19,864
Total liabilities 561,155 500,953
Total stockholders' equity 420,013 400,898
Total liabilities and
stockholders' equity $
981,168 $
901,851
Etsy, Inc.
Condensed Consolidated Statements of Operations
(in thousands except share and per share amounts; unaudited)
Three Months Ended
March 31,
2019 2018
---
Revenue $
169,339 $
120,912
Cost of revenue 52,658 41,295
Gross profit 116,681 79,617
Operating expenses:
Marketing 35,444 26,194
Product development 24,947 20,721
General and administrative 24,647 18,904
Total operating expenses 85,038 65,819
Income from operations 31,643 13,798
Other expense, net (206) (817)
Income before income taxes 31,437 12,981
Benefit (provision) for
income taxes 142 (14)
Net income $
31,579 $
12,967
Net income per share attributable to common
stockholders:
Basic $
0.26 $
0.11
Diluted $
0.24 $
0.10
Weighted-average common shares outstanding:
Basic 119,679,149 121,267,092
Diluted 130,237,875 125,772,315
Etsy, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands; unaudited)
Three Months Ended
March 31,
2019 2018
---
Cash flows from operating activities
Net income $
31,579 $
12,967
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock-based compensation
expense 8,082 6,454
Depreciation and
amortization expense 10,142 6,320
Bad debt expense 1,182 912
Foreign exchange gain (171) (2,102)
Other non-cash losses,
net 2,928 1,115
Deferred income taxes (142) 91
Changes in operating
assets and liabilities (22,142) 412
Net cash provided by
operating activities 31,458 26,169
Cash flows from investing activities
Purchases of property and
equipment (683) (192)
Development of internal-
use software (3,390) (3,097)
Purchases of marketable
securities (158,883) (59,811)
Sales of marketable
securities 140,952 17,447
Net cash used in
investing activities (22,004) (45,653)
Cash flows from financing activities
Payment of tax
obligations on vested
equity awards (5,672) (1,780)
Repurchase of stock (27,492) (68,586)
Proceeds from exercise of
stock options 5,930 10,249
Proceeds from issuance of
convertible senior notes - 345,000
Payment of debt issuance
costs (1,192) (9,127)
Purchase of capped call - (34,224)
Payments on finance lease
obligations (2,745) (1,850)
Payments on facility
financing obligation - (3,122)
Other financing, net 1,864 (2,724)
Net cash (used in)
provided by financing
activities (29,307) 233,836
Effect of exchange rate
changes on cash (1,458) 4,061
Net (decrease) increase
in cash, cash
equivalents, and
restricted cash (21,311) 218,413
Cash, cash equivalents,
and restricted cash at
beginning of period 372,326 320,783
Cash, cash equivalents,
and restricted cash at
end of period $
351,015 $
539,196
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 Currency- FX Impact As Currency-
Reported Neutral Reported Neutral FX Impact
March 31, 2019 18.9 20.6 (1.7) 18.9 20.6 (1.7)
% % % % % %
December 31, 22.3 23.1 (0.8) 20.8 20.4 0.4
2018
% % % % % %
September 30, 20.4 20.8 (0.4) 20.2 19.2 1.0
2018
% % % % % %
June 30, 2018 20.4 19.3 1.1 20.1 18.5 1.6
% % % % % %
March 31, 2018 19.8 17.6 2.2 19.8 17.6 2.2
% % % % % %
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 gain; and restructuring and other exit 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 gain;
-- Adjusted EBITDA does not consider the impact of restructuring and other
exit 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
March 31,
2019 2018
---
(in thousands)
Net income $
31,579 $
12,967
Excluding:
Interest and other non-operating
expense, net (1) 1,268 2,667
(Benefit) provision for income
taxes (142) 14
Depreciation and amortization (1) 10,142 6,320
Stock-based compensation expense
(2) 8,082 6,454
Foreign exchange gain (3) (1,062) (1,850)
Restructuring and other exit income - (151)
Adjusted EBITDA $
49,867 $
26,421
(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 months ended March 31, 2019 and 2018, those amounts are as follows:
Three Months Ended
March 31,
2019 2018
(in thousands)
Interest expense $
696 $
2,250
Depreciation 2,197 819
(2) Total stock-based compensation expense included in the Consolidated Statements of
Operations is as follows:
Three Months Ended
March 31,
2019 2018
---
(in thousands)
Cost of revenue $
1,099 $
546
Marketing 631 478
Product development 3,520 2,639
General and
administrative 2,832 2,791
Total stock-based
compensation
expense $
8,082 $
6,454
(3) Foreign exchange gain is primarily driven by the decrease in non-functional currency
intercompany balances and U.S. Dollar to Euro exchange rate fluctuations on our intercompany and
other non-functional currency balances.
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SOURCE Etsy, Inc.
