Etsy, Inc. Reports Second Quarter 2015 Financial Results

Aug 04, 2015, 16:02 ET from Etsy, Inc.

BROOKLYN, N.Y., Aug. 4, 2015 /PRNewswire/ -- Etsy, Inc. (Nasdaq: ETSY), a marketplace where people around the world connect, both online and offline, to make, sell and buy unique goods, today announced financial results for its second quarter 2015, ended June 30, 2015.

"Over the past 10 years we built a platform that connects people and communities through commerce and we have made progress toward achieving our mission to reimagine commerce by continuing to execute on our long-term strategy," said Chad Dickerson, Etsy, Inc. CEO and Chairman. "At the end of the second quarter of 2015, our loyal and engaged community included nearly 1.5 million active sellers and 21.7 million active buyers who drove more than $1 billion in GMS during the first half of the year. We succeed when our sellers succeed, and we believe our reputation as an authentic, trusted marketplace is the foundation for the long-term value we expect to create for our entire community, including our investors, for decades to come."

 

Second Quarter 2015 Financial Summary

(in thousands)










Three Months Ended
 June 30,


% Growth
Y/Y


Six Months Ended
 June 30,


% Growth
Y/Y


2014


2015




2014


2015















GMS

$

438,472



$

546,197



24.6

%


$

853,305



$

1,078,112



26.3

%

Revenue

$

42,509



$

61,365



44.4

%


$

83,045



$

119,908



44.4

%

Marketplace revenue

$

24,777



$

30,469



23.0

%


$

48,504



$

60,620



25.0

%

Seller Services revenue

$

16,587



$

29,770



79.5

%


$

32,420



$

57,049



76.0

%

Adjusted EBITDA

$

3,432



$

4,061



18.3

%


$

9,535



$

10,734



12.6

%













Active sellers

1,191



1,484



24.6

%


1,191



1,484



24.6

%

Active buyers

16,490



21,697



31.6

%


16,490



21,697



31.6

%

Percent mobile visits

53

%


60

%


700

bps


51

%


60

%


900

bps

Percent mobile GMS

36

%


43

%


700

bps


36

%


43

%


700

bps

Percent international GMS

30.9

%


30.2

%


(70)

bps


30.7

%


30.4

%


(30)

bps

For information about how we define these metrics, see our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 filed with the SEC on May 22, 2015.


Second Quarter 2015 Operational Highlights

GMS was $546.2 million, up 24.6% compared with the second quarter of 2014. Growth in GMS was driven by 24.6% year-over-year growth in active sellers and 31.6% year-over-year growth in active buyers. We continued to make progress in narrowing the gap between mobile visits and mobile GMS as a result of strong year-over-year GMS growth on our mobile app platform. Etsy has rapidly become a mobile-first company; percent mobile visits was approximately 60% compared with approximately 53% in the second quarter of 2014 and percent mobile GMS was approximately 43% compared with approximately 36% in the second quarter of 2014. Mobile visits also continued to grow faster than desktop visits.

We believe our GMS growth and percent international GMS are impacted by currency exchange rates in two ways. First, approximately 9% of our GMS comes from goods that are not listed in U.S. dollars and as a result is subject to the impact of currency exchange fluctuations.  On a currency-neutral basis, GMS growth in the second quarter of 2015 would have been 26.5% or approximately 1.9 percentage points higher than the as-reported 24.6% growth.

Second, we believe weaker local currencies in key international markets continued to dampen the demand for U.S. dollar-denominated goods during the second quarter of 2015. For example, during the second quarter of 2015, GMS from international buyers purchasing from U.S. sellers declined approximately 6% year-over-year, compared with approximately 43%, 23% and 0.3% year-over-year growth in the third and fourth quarters of 2014 and the first quarter of 2015, respectively. In contrast, excluding our French subsidiary ALM, GMS from international buyers making purchases from sellers in their own country grew more than 50% year-over-year during the second quarter of 2015. We continue to believe that we can grow international GMS, over time, to represent 50% of our total GMS and that the impact of currency exchange rates contributed to the year-over-year decline in percent international GMS, which was 30.2% in the second quarter of 2015. Percent international GMS was approximately flat in the second quarter of 2015 compared with the first quarter of this year.  

Second Quarter 2015 Financial Highlights

Total revenue was $61.4 million, up 44.4% year-over-year, driven by growth in both Marketplace and Seller Services revenue. Marketplace revenue grew 23.0%, primarily due to growth in transaction fee revenue and, to a lesser extent, growth in listing fee revenue. Seller Services revenue grew 79.5% year-over-year, primarily due to growth in revenue from Promoted Listings, which continued to benefit from the re-launch of the product at the end of the third quarter of 2014. Seller Services revenue also benefited from growth in revenue from Direct Checkout and Shipping Labels.

Gross profit for the second quarter was $39.5 million, up 56.8% year-over-year, and gross margin was 64.3%, up 510 bps compared with 59.2% in the second quarter of 2014. Similar to the first quarter of 2015, gross profit grew faster than revenue in the second quarter because of leverage in the cost of revenue for employee-related and hosting and bandwidth costs. In addition, growth of a higher-margin revenue stream, Promoted Listings, outpaced growth of lower-margin Direct Checkout revenue. 

Total operating expenses were $43.2 million in the second quarter, up 49.3% year-over-year. The increase in operating expenses was primarily driven by increases in marketing and G&A expenses. Marketing expenses were up 77.3% year-over-year due to planned increases in spending on product listing ads, higher employee-related expenses, also as anticipated, and approximately $300,000 in IPO-related expenses that were not deductible from IPO proceeds, which were disclosed last quarter. Product development expenses grew 14.6% year-over-year, primarily due to higher employee-related expenses. G&A expenses grew 54.7% year-over-year, mostly driven by higher employee-related expenses and Etsy's one-time charitable cash contribution of $300,000 to Etsy.org.

Non-GAAP Adjusted EBITDA for the second quarter was $4.1 million and grew 18.3% year-over-year. Adjusted EBITDA margin was 6.6%, down 150 bps year-over-year. The year-over-year Adjusted EBITDA margin comparison was impacted by the previously mentioned increases in marketing and employee-related expenses. 

Net loss for the second quarter of 2015 was $6.4 million, compared with a $3.2 million net loss in the second quarter of 2014 and a $36.6 million net loss in the first quarter of 2015. Etsy's net loss in the second quarter of 2015 was favorably impacted by a $5.8 million non-cash, non-operating currency exchange gain largely due to intercompany debt related to Etsy's revised global corporate structure that we implemented on January 1, 2015. Largely offsetting this non-cash, non-operating gain, we also recorded a $4.9 million tax provision, of which $2.0 million was non-cash, also related to the revised global corporate structure. Etsy's revised global corporate structure was implemented to more closely align with its global operations and future expansion plans outside the U.S.

Net cash provided by operating activities was $4.7 million in the second quarter of 2015 compared with $0.7 million in the second quarter of 2014.

Cash and marketable securities were $268.2 million as of June 30, 2015 and included $194.1 million in net proceeds from our initial public offering.

Third Quarter 2015 Outlook: Factors to Consider

We'd like to highlight a few factors that we believe will impact Etsy's third quarter 2015 results. First, as we conveyed in the first quarter of 2015, if currency exchange rates remain at current levels, currency translation will continue to negatively affect GMS growth for goods that are not listed in U.S. dollars and will also continue to dampen the demand for U.S. dollar-denominated goods from buyers outside of the U.S. Second, similar to the first and second quarters, we plan to spend more on marketing in absolute dollars in the third quarter compared with both the second quarter of 2015 and the third quarter of 2014. Third, also similar to the second quarter, we expect to increase the pace of hiring in the third quarter compared with both the second quarter of 2015 and the third quarter of 2014.  Finally, we would like to remind investors that by the end of the third quarter 2015, we will anniversary the re-launch of Promoted Listings, which has been the biggest driver of Seller Services year-over-year revenue growth this year. As we approach this anniversary, we expect the revenue growth rate from this service to decelerate.

Webcast and Conference Call Replay Information

Etsy will host a webcast to discuss these results at 5:30 p.m. ET today. To access the live webcast, please visit the Etsy Investor Relations website, investors.etsy.com and go to the Investor Events section.

A replay will be available following the live webcast and may be accessed on the same website. A telephonic replay will also be available through midnight ET on August 18, 2015 at (855) 859-2056 or (404) 537-3406; conference ID 78575386.

About Etsy

Etsy is a marketplace where millions of people around the world connect, both online and offline, to make, sell and buy unique goods. The Etsy ecosystem includes creative entrepreneurs who sell on our platform, thoughtful consumers looking to buy unique goods in our marketplace, responsible manufacturers who help Etsy sellers grow their businesses and Etsy employees who maintain our platform and nurture our community. Our mission is to reimagine commerce in ways that build a more fulfilling and lasting world, and we're committed to using the power of business to strengthen communities and empower people.

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

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include information related to our possible or assumed future results of operations and expenses, our third quarter outlook, our mission, business strategies and plans, business environment and future growth. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as "believes," "expects," "may," "plans," "should," "will," or similar expressions and the negatives of those terms.

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 (i) our history of operating losses; (ii) the fluctuation of our quarterly operating results; (iii) adherence to our values and our focus on long-term sustainability, which may negatively influence our short- or medium-term financial performance; (iv) the importance to our success of the authenticity of our marketplace and the connections within our community; (v) further expansion into markets outside of the United States; (vi) increases in our marketing efforts to help grow our business, which may not be effective at attracting new members and retaining existing members; (vii) our payments system, which depends on third-party providers and is subject to evolving laws and regulations; (viii) our ability to expand our ecosystem to add new constituents and open new sales channels; (ix) our ability to develop new offerings to respond to our members' changing needs; (x) the effectiveness of our mobile solutions for Etsy sellers and Etsy buyers; and (xi) our ability to compete effectively. 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, 2015.

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

 

Etsy, Inc.

Condensed Consolidated Balance Sheets

(in thousands, unaudited)






As of
December 31, 
 2014


As of
June 30, 
 2015





ASSETS




Current assets:




Cash and cash equivalents

$

69,659



$

268,155


Short-term investments

19,184



21,542


Accounts receivable, net

15,404



14,028


Prepaid and other current assets

12,241



7,965


Deferred tax assets—current

2,932



3,135


Deferred tax charge—current



17,605


Funds receivable and seller accounts

10,573



10,927


Total current assets

129,993



343,357


Restricted cash

5,341



5,341


Property and equipment, net

75,538



85,446


Goodwill

30,831



28,297


Intangible assets, net

5,410



4,035


Deferred tax charge—net of current portion



60,539


Other assets

2,022



2,113


Total assets

$

249,135



$

529,128


LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

8,231



$

5,955


Accrued expenses and other current liabilities

17,442



27,344


Capital lease obligations—current

1,755



4,021


Funds payable and amounts due to sellers

10,573



10,927


Deferred revenue

3,452



3,990


Total current liabilities

41,453



52,237


Capital lease obligations—net of current portion

3,148



6,983


Warrant liability

1,920




Deferred tax liabilities

3,081



70,687


Facility financing obligation

50,320



51,804


Other liabilities

1,913



21,656


Total liabilities

101,835



203,367


Total convertible preferred stock

80,212




Total stockholders' equity

67,088



325,761


Total liabilities, convertible preferred stock and stockholders' equity

$

249,135



$

529,128


 

Etsy, Inc.

Condensed Consolidated Statements of Operations

(in thousands except share and per share data, unaudited)






Three Months Ended
 June 30,


Six Months Ended
 June 30,


2014


2015


2014


2015









Revenue

$

42,509



$

61,365



$

83,045



$

119,908


Cost of revenue

17,345



21,909



32,739



42,618


Gross profit

25,164



39,456



50,306



77,290


Operating expenses:








Marketing

8,766



15,543



16,234



27,753


Product development

8,792



10,072



16,834



20,081


General and administrative

11,400



17,632



20,613



38,089


Total operating expenses

28,958



43,247



53,681



85,923


Loss from operations

(3,794)



(3,791)



(3,375)



(8,633)


Total other expense

235



2,346



(434)



(18,673)


Loss before income taxes

(3,559)



(1,445)



(3,809)



(27,306)


Benefit (provision) for income taxes

408



(4,909)



195



(15,634)


Net loss

$

(3,151)



$

(6,354)



$

(3,614)



$

(42,940)


Net loss per share—basic and diluted

$

(0.08)



$

(0.07)



$

(0.10)



$

(0.61)


Weighted average shares outstanding—basic and diluted

40,155,210



96,503,149



37,349,613



70,403,009


 

Etsy, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)




Six Months Ended
 June 30,


2014


2015





Cash flows from operating activities




Net loss

$

(3,614)



$

(42,940)


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




Stock-based compensation expense

2,913



4,355


Stock-based compensation expense-acquisitions

348



2,439


Contribution of stock to Etsy.org



3,200


Depreciation and amortization expense

8,027



9,073


Bad debt expense

511



1,642


Foreign exchange loss



15,048


Amortization of debt issuance costs

9



73


Net unrealized loss on warrant and other liabilities

274



3,139


Loss on disposal of assets

76



411


Amortization of deferred tax charges



9,883


Excess tax benefit from exercise of stock options



(1,382)


Changes in operating assets and liabilities, net of acquisitions

(1,630)



8,691


Net cash provided by operating activities

6,914



13,632


Cash flows from investing activities




Acquisition of businesses, net of cash acquired

(4,414)




Purchases of property and equipment

(795)



(4,544)


Development of internal-use software

(4,033)



(5,123)


Purchase of U.S. Government and agency bills

(15,296)



(13,236)


Sale of marketable securities

13,556



10,883


Net increase in restricted cash

(5,341)




Net cash used in investing activities

(16,323)



(12,020)


Cash flows from financing activities




Proceeds from public offering



199,467


Proceeds from the issuance of common stock

35,000




Proceeds from exercise of stock options

7,027



2,058


Excess tax benefit from the exercise of stock options



1,382


Payments on capitalized lease obligations

(658)



(1,254)


Deferred payments on acquisition of business

(75)




Payments relating to public offering



(2,491)


Net cash provided by financing activities

41,294



199,162


Effect of exchange rate changes on cash

(230)



(2,278)


Net increase in cash and cash equivalents

31,655



198,496


Cash and cash equivalents at beginning of period

36,795



69,659


Cash and cash equivalents at end of period

$

68,450



$

268,155


 

Use of Non-GAAP Financial Measures

In this press release, we provide Adjusted EBITDA, a non-GAAP financial measure that represents our net loss before interest expense, net, (benefit) provision for income taxes and depreciation and amortization, adjusted to eliminate stock-based compensation expense, net unrealized loss (gain) on warrant and other liabilities, foreign exchange loss (gain), contributions to Etsy.org and acquisition-related expenses. Following is a reconciliation of Adjusted EBITDA to net loss, 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 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:

  • 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 or changes in the fair value of warrants;
  • Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
  • Adjusted EBITDA does not reflect acquisition-related expenses;
  • Adjusted EBITDA does not consider the impact of foreign exchange loss (gain);
  • Adjusted EBITDA does not reflect the impact of our contributions to Etsy.org; 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 loss and our other GAAP results.

 

Reconciliation of Net Loss to Non-GAAP Adjusted EBITDA

(in thousands, unaudited)






Three Months Ended
 June 30,


Six Months Ended
 June 30,


2014


2015


2014


2015









Net loss

$

(3,151)



$

(6,354)



$

(3,614)



$

(42,940)


Excluding:








Interest expense, net

107



308



160



486


(Benefit) provision for income taxes (1)

(408)



4,909



(195)



15,634


Depreciation and amortization

4,132



4,732



8,027



9,073


Stock-based compensation expense (2)

1,737



2,222



2,913



4,355


Stock-based compensation expense—acquisitions (2)

348



598



348



2,439


Net unrealized (gain) loss on warrant and other liabilities

(342)



3,151



274



3,139


Foreign exchange (gain) loss (3)



(5,805)





15,048


Acquisition-related expenses

1,009





1,622




Contribution to Etsy.org (4)



300





3,500


Adjusted EBITDA

$

3,432



$

4,061



$

9,535



$

10,734


(1) The provision for income taxes in the three and six months ended June 30, 2015 reflects the impact of the revised global corporate structure implemented on January 1, 2015.

(2) Total stock-based compensation expense included in the consolidated statements of operations is as follows (in thousands):

 


Three Months Ended
 June 30,


Six Months Ended
 June 30,


2014


2015


2014


2015









Cost of revenue

$

279



$

124



$

374



$

532


Marketing

42



126



72



229


Product development

371



681



662



1,225


General and administrative

1,393



1,889



2,153



4,808


Total stock-based compensation expense

$

2,085



$

2,820



$

3,261



$

6,794


(3) Foreign exchange (gain) loss in the three and six months ended June 30, 2015 includes a gain of $5.8 million and a loss of $15.0 million, respectively. The majority of the impact relates to intercompany debt incurred in connection with Etsy's revised global corporate structure.

(4) Etsy made a one-time contribution of 188,235 shares of common stock totaling $3.2 million to Etsy.org during the first quarter of 2015. In addition, Etsy made a one-time cash contribution of $300,000 to Etsy.org during the second quarter of 2015.

 

SOURCE Etsy, Inc.