Here's our initial take on Etsy's (ETSY 2.79%) fiscal 2025 second-quarter financial report.
Key Metrics
| Metric | Q2 2024 | Q2 2025 | Change | vs. Expectations |
|---|---|---|---|---|
| Revenue | $647.8 million | $672.7 million | +4% | Beat |
| Earnings per share | $0.41 | $0.25 | -39% | Missed |
| Gross merchandise sales | $2.95 billion | $2.81 billion | -5% | n/a |
| Take rate | 22% | 24% | +2 pp | n/a |
The Second Quarter Was a Mixed Bag
Online marketplace Etsy is in turnaround mode as sales volumes on its platform decline. Etsy reported a 4.8% drop in gross merchandise sales in the second quarter, or a 2.6% drop excluding Reverb, which has been sold. The number of active buyers fell by 3.4% to 93.3 million, and the number of active sellers slumped 7.8% to 8.1 million.
While Etsy's marketplace is becoming a little less busy, there were two pieces of good news for investors. First, Etsy is successfully bumping up its take rate, which is the percentage of gross merchandise sales it takes as revenue. Etsy reported a take rate of 24% in the second quarter, up from 22% in the prior-year period, with revenue from ads the main growth driver. Second, Etsy's Depop fashion marketplace is thriving. Depop grew gross merchandise sales by 35.3% year over year in the second quarter to $249.6 million, putting the business on a $1 billion annual GMS run rate.
Etsy's priority right now is to return to GMS growth. The company is in the middle of multiple initiatives that aim to do just that, including improving the search and browsing experience for buyers, personalizing marketing, deploying AI technology, and retaining its most valuable customers. Etsy has 6.1 million habitual buyers, and it acquired 4.8 million new buyers during the quarter despite the overall decline in buyer activity.
Etsy's earnings per share tumbled 39%, although this was mostly due to a noncash charge related to currency fluctuations. Adjusted EBITDA was down just 5.8%, and the company reported solid free cash flow of nearly $150 million for the first six months of the year.
Immediate Market Reaction
Shares of Etsy were up around 5% in premarket trading on Wednesday despite the company reporting a decline in gross merchandise sales and missing analyst expectations for earnings. The company beat expectations for revenue thanks to a rising take rate, and the earnings miss was largely due to currency. Going into the report, Etsy stock was up about 14% year to date.
What to Watch
For the third quarter, Etsy is guiding for gross merchandise sales of $2.6 billion to $2.7 billion, along with a take rate of approximately 24.5%. There will be no contribution from Reverb in the third quarter, so the guidance range compares to $2.7 billion in ex-Reverb GMS that Etsy reported for the second quarter.
Etsy is taking multiple steps to stop the exodus of buyers and sellers on its platform, and while the effort is still in its early stages, the company is managing to grow revenue while maintaining strong profitability. Depop should help the cause as it grows, although the Etsy marketplace is still much larger in terms of GMS.
