Etsy, Inc. Reports Fourth Quarter and Full Year 2023 Results

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Highest-ever quarterly revenue achieved in Q4 23

BROOKLYN, N.Y., Feb. 21, 2024 /PRNewswire/ — Etsy, Inc. (NASDAQ:ETSY), which operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world, today announced financial results for its fourth quarter and full year ended December 31, 2023.

“Etsy delivered over $13 billion in consolidated GMS and our highest-ever annual revenue,” said Josh Silverman, Etsy’s Chief Executive Officer. “We’ve built an ambitious plan to invest in a portfolio of growth initiatives in 2024, starting with efforts to make Etsy an indispensable partner for Gifting. We recently launched Gift ModeTM, an interactive hub for gifting that combines AI and human curation to help shoppers find the perfect present — just the beginning of our bold plans to drive buyer consideration and frequency. We start the year energized – with the right team, a highly relevant and differentiated Right to Win strategy, a disciplined investment approach, and a resilient business model.”

Fourth quarter 2023 performance highlights include:

Consolidated GMS was $4.0 billion, down 0.7% year-over-year and down 1.6% on a currency neutral basis. Headwinds to consolidated GMS included a dynamic macroeconomic environment that impacted consumer discretionary product spending, Etsy marketplace category mix, and a highly promotional and competitive retail environment, as well as a small headwind from the divestiture of Elo7.
Etsy marketplace GMS was $3.6 billion, down 1.4% year-over-year and up 142% on a four-year basis.

The Etsy marketplace’s GMS accelerated during the holiday season, with GMS during Cyber 5 (Thanksgiving through Cyber Monday) up 4% on a year-over-year basis. We delivered record levels of GMS on Cyber Monday and Giving Tuesday.
Active buyers reached a new all-time high of 92 million, increasing 3% year-over-year. United States active buyer trends continued to improve, with modestly positive year-over-year growth again this quarter, and international buyer growth remained strong. 
We reactivated a record nearly 10 million lapsed buyers, up 13% from the prior year, and we acquired over 8 million new buyers. On a trailing twelve month basis, our retention of active buyers improved from the prior year and remained above pre-pandemic levels.
While GMS per active buyer on a trailing twelve month basis was down 4% year-over-year to $126 in the fourth quarter, this metric declined only 1% from the prior quarter as trends continued to show signs of stabilization. Our number of habitual buyers remained stable on a sequential basis at just over 7 million.
GMS ex-U.S. domestic for the Etsy marketplace was 47% of overall GMS, with GMS ex-U.S. domestic up 4% year-over-year.

Consolidated revenue reached a record $842.3 million, up 4.3% versus the fourth quarter of 2022, with take rate (i.e., consolidated revenue divided by consolidated GMS) of 21%. Solid revenue growth was primarily driven by growth in Etsy Ads and payments revenue.
Consolidated net income was $83.3 million, down 24.0% year-over-year, largely due to restructuring and other exit costs of $27 million recognized in the fourth quarter. Consolidated net income margin (i.e., net income divided by revenue) was approximately 10%, down approximately 400 basis points year-over-year, and diluted earnings per share was $0.62, reflecting the impact of restructuring and exit costs.
Consolidated non-GAAP Adjusted EBITDA was a record $235.5 million, with consolidated non-GAAP Adjusted EBITDA margin (i.e., consolidated non-GAAP Adjusted EBITDA divided by consolidated revenue) of approximately 28%, relatively flat year-over-year.
We ended the year with $1.2 billion in cash and cash equivalents, short- and long-term investments. Under Etsy’s stock repurchase program, during the fourth quarter of 2023, Etsy repurchased an aggregate of approximately $93 million, or 1,347,993 shares, of its common stock.

“We delivered our highest-ever quarterly consolidated revenue of $842 million in the fourth quarter due to healthy GMS flow through, strong growth in Etsy Ads and good contribution from payments,” said Rachel Glaser, Etsy’s Chief Financial Officer. “We made significant product and marketing investments to support the important holiday period, and our fourth quarter consolidated Adjusted EBITDA grew to an all-time high of $236 million. For the full year, our operational rigor and capital light business model have allowed us to deliver about $754 million in consolidated Adjusted EBITDA, at 27.4% margin, converting nearly 90% of that Adjusted EBITDA to free cash flow. In 2023, capital return accounted for nearly 90% of our Free Cash Flow, demonstrating a shift in our capital return strategy to more intentionally return a higher percentage of free cash flow, especially during times of volatility in our stock, and when valuations are meaningfully below our view of fair value.”

Fourth Quarter and Full Year 2023 Financial Summary
(in thousands, except percentages; unaudited)

The financial results of Elo7 have been included in our consolidated financial results until August 10, 2023 (the date of sale). The GAAP and non-GAAP financial measures and key operating metrics we use are:

Three Months Ended
December 31,

%
(Decline)
Growth

Y/Y

Year Ended
December 31,

% (Decline)
Growth

Y/Y

2023

2022

2023

2022

GMS (1)

$ 4,007,404

$ 4,033,782

(0.7) %

$  13,161,196

$  13,318,396

(1.2) %

Revenue

$    842,322

$    807,241

4.3 %

$ 2,748,377

$ 2,566,111

7.1 %

Marketplace revenue

$    615,795

$    600,158

2.6 %

$ 1,997,190

$ 1,910,887

4.5 %

Services revenue

$    226,527

$    207,083

9.4 %

$    751,187

$    655,224

14.6 %

Gross profit

$    586,565

$    581,466

0.9 %

$ 1,919,702

$ 1,821,519

5.4 %

Operating expenses

$    471,107

$    442,122

6.6 %

$ 1,639,861

$ 2,480,079

(33.9) %

Net income (loss) (2)

$      83,266

$    109,548

(24.0) %

$    307,568

$  (694,288)

144.3 %

Net income (loss) margin

9.9 %

13.6 %

       (370) bps

11.2 %

(27.1) %

      3,830 bps

Adjusted EBITDA (Non-GAAP)

$    235,514

$    227,219

3.7 %

$    754,311

$    716,882

5.2 %

Adjusted EBITDA margin (Non-GAAP)

28.0 %

28.1 %

         (10) bps

27.4 %

27.9 %

         (50) bps

Active sellers (3)

9,035

7,470

21.0 %

9,035

7,470

21.0 %

Active buyers (3)

96,483

95,076

1.5 %

96,483

95,076

1.5 %

Percent mobile GMS

68 %

67 %

         100 bps

68 %

67 %

         100 bps

Percent GMS ex-U.S. Domestic (1)

45 %

44 %

         100  bps

45 %

44 %

         100 bps

(1)

Consolidated GMS for the year ended December 31, 2023 includes Etsy.com GMS of $11.6 billion, Reverb GMS of $942.1 million, Depop GMS of $599.6 million, and Elo7 GMS of $42.1 million (from January 1, 2023 until the date of sale on August 10, 2023). Percent GMS ex-U.S. Domestic for Etsy.com for both the three months and the year ended December 31, 2023 was 47%.

(2)

Net loss for the year ended December 31, 2022 is driven by the Depop and Elo7 asset impairment charge of $1.0 billion.

(3)

Consolidated active sellers and active buyers includes Etsy.com active sellers and active buyers of 7.0 million and 92.0 million, respectively, as of December 31, 2023 and excludes Elo7 active sellers and active buyers for the year ended December 31, 2023.

To provide consistency with our calculation of GMS, beginning in the first quarter of 2023, we have reported our mobile GMS, GMS ex-U.S. domestic, and Non-U.S. domestic GMS as a percentage of GMS net of refunds. We did not apply this change to prior periods as the impact was immaterial to such periods. For information about how we define our metrics, see our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.

Full Year 2023 Etsy Marketplace Operating Highlights

Our “Right to Win” is centered on key elements that we believe make the Etsy marketplace a better place to shop and sell and, which, in turn, will bring more buyers, lead to increased frequency and size of purchases, and build trust in the Etsy marketplace. In 2023, we focused on building buyer consideration by making it easier to ‘find the best stuff’ on Etsy, driving association that Etsy sellers offer great value, and making shopping on Etsy more reliable and dependable. We worked to build Etsy’s brand association in key categories and purchase occasions, such as Gifting, Home & Living, and Style.

In 2023, returns on our product development investments were solid, with the number of product development launches up about 30% over the prior year. We also delivered strong results from marketing investments. Below is a recap of some of our key initiatives.

We worked to elevate the best of Etsy in our Search results, including our ‘Curation at Scale’ efforts to combine human curation with machine learning models to show quality listings. We ended the year with a library of over one million curated listings, which convert over two times better, on average, than other listings and attract more loyal buyers. We also made improvements to the item ranking we use for recommendations in order to consider longer-term buyer interests and deliver more diverse results. We tested new Generative AI enabled features in order to develop new ways to move search functionality from keywords to conversations. Elements of this work are being incorporated into new Etsy products for 2024, including our recently launched Gift Mode.

We highlighted the great value Etsy has to offer by: 1) expanding seller funded promotional events and elevating their prominence on and off the marketplace, which contributed meaningful GMS for the year; 2) introducing new types of signals and nudges to highlight promotional events; 3) selectively utilizing Etsy-funded site wide promotions to test return on investment (“ROI”) thresholds for this type of investment; and 4) launching a new Deals tab in our app to provide more prominence for deals and personalization for buyers.

We created category experiences for Gifting, Home & Living, and Style purchase occasions. We now offer three Registries (Gift, Wedding, and Baby) and launched a new and improved ‘Gift Finder.’ Our ‘Etsy Has It’ brand campaign was also an important component of this effort to build buyer consideration for these purchase occasions given its direct messaging and call-to-action.

We worked to continue to build trust in our marketplace by expanding proactive listing review and enforcement of our Handmade Policy. In 2023, we removed approximately 140% more listings for violations of our Handmade Policy than in 2022. We estimate that we have reduced how often buyers see merchandise that appears to violate our listings guidelines by more than half since the first half of 2023. We also leaned into our ‘On Time or Your Money Back’ messaging in the United States this holiday season, and we incorporated shipping label purchasing reminders in seller communications to increase shipping label adoption, which improves transparency for buyers.

We supported our sellers with multiple product launches to help grow their business. For example, our Etsy Share & Save program, a way for sellers to save on Etsy fees for sales they drive to their Etsy shop, was adopted by a large percentage of our top sellers. This program also positively impacted incremental visits and average order value. We published a new ‘Pricing Guide,’ providing useful considerations for setting sustainable pricing strategies, and we launched ‘Make an Offer’ (“MAO”), a feature that provides U.S. sellers, as well as sellers who list items in U.S. dollars, the option to receive offers from buyers, allowing direct price negotiation.

Fourth Quarter 2023 Operating Highlights

Select highlights of fourth quarter business initiatives for the Etsy marketplace are outlined below:

Product: Focused on increasing Consideration for Etsy: Quality + Great Value + Reliability.

Multiple product initiatives successfully drove GMS during the all-important holiday season. For example, our Cyber Sales Hub, a highly curated landing page of seller funded promotions, highlighted seller funded discounted items throughout Cyber Week, positively impacting visits and conversion rate. We increased urgency signals by adding promotional banners and nudges to our website and app homepages, which drove meaningful increases in conversion rate. In addition, our new ‘Deals’ tab also increased conversion rate and app engagement.

Our Search & Discovery teams launched a new graph neural network retrieval system, which, when combined with existing neural networks, should enhance our search retrieval capabilities by enabling improved interactions between listings, resulting in better search relevance. We also enhanced our neural ranking model in non-U.S. markets to include all features available in the United States.

We continued to work to make Etsy a trusted brand. For example, 99% of purchases in the United States were delivered on or before the estimated delivery date this holiday season. In order to better enable last minute gifting missions and improve fulfillment experiences, we launched an estimated delivery date filter in search results and highlighted local delivery options to buyers. Work on buyer reviews, particularly the addition of subcategories related to quality, shipping, and customer service, for example, drove meaningful growth in buyer review submissions. We expanded Etsy Payments to seven additional countries, bringing a more seamless shopping experience to more of our buyers and sellers.

We are investing in our sellers by providing them the tools and insights to set sustainable pricing strategies. We began initial testing of our ‘Seller Growth Tips’ within Shop Manager, providing sellers personalized checklists such as tips for how to stand out in search results, build buyer trust, and other helpful resources.

Etsy Ads was once again a key driver of revenue growth. During the quarter, we utilized novel approaches for machine learning generated graph representations to increase ad relevance, which positively impacted average order value of items sold across the marketplace. We also added localization capabilities to our existing ads ranking system to improve ad relevancy in international markets, driving higher conversion rates.

Marketing: We continued to optimize marketing channel investments, focusing on driving top-of-mind awareness and new buyer acquisition, increasing purchase frequency of existing buyers, and reactivating lapsed buyers.

Building brand awareness for specific purchase occasions was an important focus, particularly within Gifting. We increased our Etsy marketplace brand spending by over 20% year-over-year, while significantly increasing ROI as our media efficiencies continued to improve. Our holiday gifting missions campaigns ran in the United States and United Kingdom, delivering the message that Etsy can be an indispensable partner for all gifting missions. Early indications suggest that these campaigns may be contributing to increased brand association for Etsy in the gifting category.

An important …

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