Q3 2024 Summary
Published Feb 18, 2025, 5:23 PM UTC- Etsy's robust share repurchase program: The Board approved an additional $1 billion for share repurchases, allowing Etsy to buy back shares beyond current levels, reflecting confidence in growth plans and belief that the stock is undervalued. The company generates significant free cash flow, converting over 90% of adjusted EBITDA, and holds $1.2 billion in cash, providing ample capacity for share repurchases without impacting organic investments.
- Strong growth of Depop enhancing Etsy's market position: Depop's Gross Merchandise Sales (GMS) are growing over 30% year-over-year, with the U.S. market growing substantially faster, benefiting from the promotionally driven market and increasing demand for secondhand apparel. This validates Etsy's portfolio strategy and strengthens its exposure to the growing apparel resale market, contributing positively to overall company growth.
- Launch of physical gift cards unlocking new revenue streams: Etsy has started rolling out physical gift cards at over 20,000 stores in the U.S., with gift cards currently representing less than 1% of GMS compared to 2-3% for peers. This initiative has the potential to bring new customers to Etsy and increase purchase frequency, as buyers who redeem gift cards tend to spend more than the card's value, providing significant upside over time.
- Shorter and later holiday season along with the U.S. general election may negatively impact consumer spending, potentially reducing Etsy's GMS during a critical sales period. As CEO Josh Silverman noted, "the holiday season this year is later than normal and shorter than normal... we have an election going on in the United States. That's an incredibly distracting mindshare event where lots of people aren't necessarily thinking about shopping".
- Investments in foundational initiatives have not yet translated into expected growth, indicating potential challenges in realizing return on investment in the near term. Josh Silverman stated, "I would like to see those things start to translate into the growth we expect to see".
- Increasing need for additional investment in areas like app development and machine learning may lead to rising costs, which could impact margins if not managed carefully. The company is "hiring more app engineers" and has "opened up more recs to hire some more people in machine learning".
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +4% from $636.3M to $662.4M | Marketplace expansion (increased share of Etsy Payments and Depop GMS), additional services (notably higher shipping label and ads revenue), and incremental product optimizations (e.g., refined search and ads) contributed to incremental revenue growth. Ongoing macro headwinds (inflation and discretionary spending shifts) constrained upside. Overall, Etsy remains focused on product innovation, suggesting stable growth potential. |
Marketplace Revenue | +3% from $460.9M to $476.1M | Higher payments adoption, particularly international regions with higher payment fees, and fee-based initiatives (e.g., offsite ads) lifted marketplace revenue. Buyer retention challenges amid macro pressure tempered gains. Plans to refine seller onboarding and improve buyer experience may further bolster marketplace revenue long term. |
Services Revenue | +6% from $175.4M to $186.3M | Primarily driven by increased ad revenue (more clicks and improved relevancy) and shipping label adoption on Depop. Efforts to expand value-added services for sellers (e.g., advertising, shipping solutions) supported growth. Future enhancements target increased monetization without hampering conversion. |
Net Income | -35% from $87.9M to $57.4M | Higher operating costs (including marketing and certain tax impacts) and one-time expenses compressed margins, offsetting revenue gains. Reduced asset impairment charges compared to prior periods helped partially, but a less favorable tax environment and slower GMS growth weighed on profitability. Heading forward, Etsy aims to optimize spending to support net income. |
Diluted EPS | -30% from $0.64 to $0.45 | Decreased net income and tax provisioning changes reduced EPS despite a slight reduction in share count. Continuing product-led growth and cost discipline are key levers for Etsy to enhance profitability and stabilize EPS in future periods. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Consolidated GMS | Q4 2024 | no prior guidance | Decline in the low to mid-single-digit % range | no prior guidance |
Consolidated Take Rate | Q4 2024 | no prior guidance | 22.3% | no prior guidance |
Consolidated Adjusted EBITDA Margin | Q4 2024 | no prior guidance | 28% to 29% | no prior guidance |
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Margin Strategy
Q: Should Etsy invest more aggressively, even at expense of margins?
A: Management is focused on balancing investments and growth to increase market cap while being prudent with spending. They're investing in foundational projects and will consider more hiring as they see proof of ROI. Depop is growing over 30% year-over-year, validating their investment strategy. -
Q4 Guidance & Gift Cards
Q: Any color on Q4 guidance and the impact of gift cards?
A: The holiday season is later and shorter this year, with November and December looming large. The gift card launch is baked into the guide; gift cards currently make up about 1% of GMS, with potential to grow to 2-3% like peers. Building awareness takes time, so upside may build gradually. -
Take Rate Drivers
Q: What are the drivers of higher take rate beyond advertising?
A: Significant gains in take rate this year, up 130 basis points, without impacting sellers' margins. This is due to increased payments coverage, improved Etsy Ads performance, the seller onboarding fee, and Offsite Ads (OSA). These gains are sustainable and create value without harming seller margins. -
Share Buyback Plans
Q: What's the plan for share buybacks, and will you leverage the balance sheet?
A: The Board approved an additional $1 billion for buybacks, allowing flexibility to buy back beyond current levels. They've been returning about 90% of free cash flow to shareholders. The company doesn't need to increase leverage now to lean more into share repurchases. -
Key Initiatives
Q: Which initiatives will significantly impact growth?
A: Management is most excited about increasing consideration on the site to inspire new shopping missions. Advances in Gen AI help understand customer context and suggest relevant products, sparking new shopping missions. They've refactored screen real estate on the app, dedicating 1/3 more to discovery. -
Etsy Insider (Loyalty Program)
Q: How is Etsy Insider performing, and what's seller reaction?
A: It's very early days, live for 6 weeks in a limited beta. They're testing buyer propensity to subscribe to a loyalty program offering free shipping, ensuring seller economics aren't negatively impacted. Seller reaction has been generally positive. -
Gift Mode Expectations
Q: What are your expectations and marketing plans for gift mode this holiday?
A: Success is measured by GMS from gifting, which grew substantially faster than the overall marketplace in Q3 and Q2. They've enhanced features like the gift finder with 3x more gift ideas (totaling 5,000). A marketing campaign is launching to promote gifting in Q4. -
Q Score Impact
Q: Has Q score remained GMS neutral, and will mobile changes be a headwind?
A: The Q score launch was roughly neutral to conversion rate. Mobile web changes to drive app downloads have modest headwinds but are ROI positive, leading to an incremental $3 million annualized downloads. The opportunity cost is larger, as focus has been on long-term growth strategies. -
Category Performance
Q: Are you seeing differences among categories in business pressures?
A: Not much difference among categories, but pockets of value exist. Growth in demi-fine jewelry ($10-$50 items) is strong, while jewelry under $20 faces pressure due to shipping costs. Value is important in the current market. -
Product Development Leverage
Q: How are you driving leverage in product development?
A: They've reduced headcount but see leverage in product development by focusing teams (squads) on key customer experiences. They're cautious with incremental hiring, adding in areas like app engineers and machine learning.