Key Points
- Net income fell to $53.0 million due to a $7.2 million retroactive non-income tax expense, impacting margins.
- Revenue increased 3.0% to $647.8 million, driven by marketplace and payments revenue, aligning with expectations.
- General Merchandise Sales (GMS) declined by 2.1% to $2.9 billion, within the expected range.
Etsy (ETSY 3.83%), the online marketplace for handmade and vintage goods, released its earnings for Q2 2024 on July 31, reporting mixed results. The company saw net income decline to $53.0 million, down $8.9 million year-over-year, partly due to an unexpected $7.2 million retroactive non-income tax expense, reducing net income margins to 8.2%. Revenue, however, grew by 3.0% to $647.8 million, meeting management's expectations of revenue growth outpacing general merchandise sales (GMS) growth. GMS fell by 2.1% to $2.9 billion, aligning with the expected mid- to low-single-digit decline. Despite these mixed results, the company maintained a robust adjusted earnings before interest, taxes, depreciation, and amortization () margin of 27.7%, indicating operational efficiency. Overall, the quarter was marked by balanced performance, achieving revenue targets but facing challenges in buyer engagement and GMS.
| Metric | Q2 2024 Results | Management's Expectations | Q2 2023 Results | % Change Y/Y |
|---|---|---|---|---|
| GMS | $2.9 billion | Mid- to low-single-digit decline | $3.0 billion | (2.1%) |
| Revenue | $647.8 million | Revenue growth outpacing GMS growth | $628.9 million | 3.0% |
| Net Income | $53.0 million | — | $61.9 million | (14.4%) |
| Adjusted EBITDA Margin | 27.7% | Higher than prior year | 26.4% | 130 bps |
| Source: Expectations based on management's guidance, as provided in 2024-05-01 earnings report. |
Company Overview and Recent Focus
Etsy is primarily a marketplace that connects millions of buyers and sellers around the globe, focusing heavily on unique, handcrafted items. The company relies on the active engagement of its user base to drive its GMS and revenue. In recent times, Etsy has invested significantly in enhancing search and discovery technologies, like (AI) and (ML), to improve the buying experience. Marketing campaigns also play a critical role in building brand awareness and driving sales, particularly through targeted efforts around gifting occasions.
The company's recent focus areas include improving the quality of its marketplace through "Creativity Standards" and investing in search technology to ensure that buyers can easily find unique items. This focus also extends to expanding its footprint internationally and enhancing cross-border transactions. Additionally, Etsy has been working on various marketing strategies, including the launch of the "Etsy Insider Loyalty Program," to boost buyer engagement and retention.
Quarterly Highlights and Analysis
Growth and Performance of Etsy Marketplace
During Q2 2024, there was a 3.2% year-over-year decline in Etsy marketplace GMS to $2.5 billion. Although the overall GMS declined, the gifting segment grew by 4.1%, indicating the effectiveness of targeted marketing campaigns. Active buyers increased slightly by 1.0% to 91.5 million, with new buyers and reactivated buyers contributing positively. However, habitual buyers, those who purchase frequently, fell by 3.0% to 6.9 million, suggesting a drop in frequent purchasing behavior.
Search and Discovery Technology
Etsy invested in AI and ML technologies to enhance its search functionalities, which helped diversify search results and improve the buyer experience. The company also introduced new "Creativity Standards" to uphold the quality and uniqueness of the listings, setting Etsy apart from other marketplaces.
Marketing and Brand Awareness
Etsy's U.S. gifting GMS showed growth for key events like Mother's Day and Father's Day, thanks to effective marketing campaigns. The upcoming "Etsy Insider Loyalty Program," set for a beta launch in mid-September, is designed to improve buyer frequency and loyalty, further driving engagement.
International Expansion and Cross-Border Transactions
International participation remained strong, with 48% of GMS generated outside the U.S. This was facilitated by new localization efforts, including a shipping partnership for Turkish sellers and expanding Etsy Payments to cover 98% of GMS. These initiatives underscore Etsy's commitment to enhancing its global reach.
House of Brands and Acquisitions
Reverb, Etsy's music marketplace, continued to innovate with new features, while Depop removed seller fees in the U.S. to attract more buyers. Conversely, Etsy's sales of Elo7 in August 2023 led to a reduction in GMS but potentially simplified its business structure.
Looking Ahead
For Q3 2024, Etsy's management anticipates a low-single-digit decline in GMS year-over-year, with an adjusted EBITDA margin of around 27%. For the full year, the company expects stable margins, reiterating that consolidated adjusted EBITDA margins should at least match 2023 levels.
Investors should monitor key areas like the continued performance of Etsy's marketplace, advancements in search and discovery technologies, and the impact of upcoming marketing initiatives. Management's cautious yet stable outlook reflects the company's efforts to navigate current challenges while capitalizing on growth opportunities.
