Etsy (ETSY +3.21%) reinvigorated its operations about a year ago under new CEO Josh Silverman, streamlining its cost structure and doubling down on product execution. And the changes continue to pay off: The online marketplace platform for creative goods remains profitable after swinging to a profit last year, and revenue growth is accelerating.
Here are the key takeaways from Etsy's second quarter:
Image source: Etsy.
|
Metric |
Q2 2018 |
Q2 2017 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$132.4 million |
$101.7 million |
30.2% |
|
Net income |
$3.4 million |
$11.7 million |
(71%) |
|
Earnings per share |
$0.03 |
$0.04 |
(25%) |
Data source: Etsy second-quarter earnings release. Table by author.
What happened with Etsy this quarter?
- Revenue increased 30% year over year, up from 25% growth in the prior quarter and 24% growth in the fourth quarter of 2017.
- Gross merchandise sales (GMS) volume rose 20.4% year over year, up from 19.8% GMS growth in Q1.
- This was Etsy's fourth consecutive quarter of accelerating year-over-year GMS growth rates.
- Etsy's marketplace revenue rose 21% year over year
- Services revenue soared 55% year over year -- a steep acceleration from the 35% growth the segment saw in Q1.
- Net income and EPS fell by 71% and 25%, respectively, year over year.
- Net operating cash flow was $66.5 million, up from $15.4 million in the year-ago quarter.
What management had to say
Though Etsy's net income and EPS were sharply lower than they were in the year-ago quarter, management said in the company's second-quarter press release that this was primarily unrelated to regular operations: "This was due to foreign exchange fluctuations, primarily related to intercompany balances, and a tax benefit recorded last year due to employee stock-option exercises, which both contributed to the year-over-year decline in net income and diluted earnings per share."
Etsy's non-GAAP adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the period did a better job of showing how well management is scaling its business. Second-quarter non-GAAP adjusted EBITDA was $27.7 million -- up 118.1% year over year. Etsy's non-GAAP adjusted EBITDA margin was 20.9%, up 840 basis points year over year.
"Adjusted EBITDA performance was driven primarily by revenue growth and increased efficiencies in our operating structure resulting from a reduction in employee-related costs," Etsy said.
Looking forward
In the coming quarters, investors will begin to see the benefit of Etsy's recently increased transaction fee -- 5% of sales, up from 3.5%. Announced in June, the higher fee didn't go into effect until July 16.
In light of the company's strong momentum, management raised its outlook for the rest of the year, guiding for full-year GMS growth between 18% and 20%, and full-year revenue growth between 33% and 35%. Management previously expected growth for those metrics to be in the range of 16% to 19%, and 32% to 34%, respectively. Management also increased its expectations for full-year adjusted EBITDA to $124 million to $136 million -- up from $123 million to $135 million.
Etsy believes it has "a long runway for future growth," CFO Rachel Glaser said.
