Strong earnings growth for Etsy, yet profits decrease
Etsy Reports Q3 Results: Revenue Growth and New Initiatives Drive Margin Challenges
Etsy has announced its third-quarter results, revealing a significant increase in revenue and the addition of new buyers and sellers. The growth was primarily driven by an uptick in both Marketplace and Services revenue.
The company's new acquisition, Reverb, contributed $6 million to the third-quarter revenue, with Reverb's gross merchandise sales (GMS) reaching $77 million. In the short time it was part of Etsy, Reverb attracted approximately 600,000 active buyers and 155,000 active sellers.
Etsy's third-quarter revenue increased by 31.6% year over year, totaling $197.9 million. Gross profit rose by 24.7% to $129 million, but gross margin contracted by 360 basis points to 65.2%.
The company added approximately 4.2 million new buyers in the quarter, with active buyers growing 19.1% and active sellers growing 19.3% year-over-year. Gross merchandise sales per active buyer rose for the sixth straight quarter and on a 2-year basis rose nearly 4%.
Etsy is currently implementing new initiatives such as television advertising in the U.S. and a new free shipping offer, which have impacted margins in the quarter. Some Etsy sellers are encountering difficulty incorporating free shipping into their pricing. However, both frequent Etsy buyers and new ones are reacting well to the free shipping offer and driving good results.
The new Reverb marketplace will continue to compress margins for a while as the company works to integrate it. The changes to the company's guidance reflect ongoing challenges to margins. Etsy's forecast for full-year GMS growth has been boosted to 25% to 26%, while the forecast for revenue growth has been boosted to 34% to 35%. Etsy's forecast for EBITDA margin has been narrowed to $179 million to $187 million.
Despite the margin challenges, Etsy's stock tumbled late Wednesday after market close due to the changes in the company's guidance. Net income dropped by 25.6% to $14.8 million from $19.9 million a year ago.
In conclusion, Etsy's third-quarter results show a strong growth in revenue and the addition of new buyers and sellers. While the new initiatives and the integration of Reverb have impacted margins, the company remains optimistic about its future growth prospects.
