Etsy just released its second quarter earnings report for 2019 and, amid shipping policy changes, a new consolidated ad platform and a surprising acquisition, Etsy and its CEO are feeling optimistic.
In its financial release, Etsy highlighted its success with repeat shoppers. Habitual buyers were the fastest-growing consumer segment for Etsy: the customers who spend more than $200 a year on six or more purchases from Etsy sellers.
Habitual buyers gradually buy more and more, figuring out how to find the best things on the platform, and their tastes and habits are diverse. “It’s not that they are all wedding people or all baby people or all home furnishing people,” CEO Josh Silverman said on the earnings call. Etsy’s task now is to improve the searching and shopping experience for those dedicated buyers.
The changes to shipping
During the second quarter, Etsy decided to make free shipping a core feature of the shopping experience, introducing tools for sellers to adjust their pricing. “The products with a free shipping guarantee will be prioritized in U.S. search, a key factor we know sellers value deeply,” Silverman said on the earnings call. Changes to Etsy’s search algorithms will give priority to stores offering free shipping on orders over $35 as of September; the thinking is that free shipping will increase average order size and order frequency.
“It’s designed to allow our sellers to compete on a level playing field with all of the other e-commerce players out there where when you look around you see free shipping almost everywhere you go,” Silverman said.
Silverman said Etsy also has plans to address other fulfillment pain points, too, such as establishing a consistent approach to returns and ensuring that delivery date expectations are met.
Rachel Glaser, Etsy’s chief financial officer, noted on the call that 24% of active sellers use Etsy’s label service in the four markets where it offers the product. She also noted that since Etsy also charges its 5% commission fee on shipping costs passed on to buyers, the company’s overall marketplace earnings could decline if sellers eat the costs of offering free shipping.
Etsy’s new ad platform
Etsy is launching a consolidated ad platform for sellers in the third quarter of 2019. Right now Etsy’s ad tools are divided: Promoted Listings is the on-site ads platform, and Google Shopping enables Etsy sellers to create ads on the search engine. And the money that sellers want to spend on campaigns often isn’t fully utilized. Later this month, the two ad platforms will be streamlined into one called Etsy Ads where sellers can set a budget and allow Etsy to optimize the ad spending between channels.
“Our sellers have found it confusing and a bit intimidating to try to manage two separate ad programs and as a result, seller adoption of Google Shopping has been limited,” Silverman said on the earnings call. “We believe that sellers want a single simple solution with a single budget, where they tell us how much to spend and we invest that on their behalf, on and off Etsy.”
What the heck is Reverb?
Etsy signed a definitive agreement on July 21 to acquire Reverb, a six-year-old, privately held marketplace for new, used and vintage music gear, for $275 million. The transaction is expected to close in late third quarter or early fourth quarter of 2019.
“This transaction is a great strategic fit that firmly aligns with our mission of keeping commerce human,” Silverman said on the earnings call. “Reverb is the Etsy of musical instruments, with significant competitive differentiation and we see tremendous value and potential in the business.”
The financials
Gross merchandise sales were up by 21.4% in the second quarter of 2019 from the same period last year, and revenue was up 36.8%, Etsy said in its quarterly financial report.
Gross merchandise sales (GMS), referring to the value of all of the products sold via Etsy’s marketplace, reached nearly $1.1 billion in the second quarter of 2019, up from $902 million in the second quarter of 2018.
Revenue, the money Etsy earned from its commissions on those sales and services such as ads, was $181 million in the second quarter of 2019, up from $132 million in the second quarter of 2018. For the whole fiscal year, Etsy now projects 32% to 34% growth in revenue compared to 2018 — expecting to hit about $800 million — up from 30% to 32% growth it projected earlier this year.
International sales accounted for 38% of overall GMS and increased 37% year-over-year, making it another record quarter for international GMS growth. Germany, one of Etsy’s core international markets, “continues to benefit from the DaWanda agreement,” the company said. When German handmade marketplace DaWanda shut down last August, sellers were redirected to Etsy, which did not acquire the company. DaWanda was a fraction of the size of Etsy but had significant visibility in Central Europe.
I believe that Etsy is promoting the free shipping on purchased that are $36 and over AND items that ship free all the time…that’s how it reads to me.
What seems disingenuous and questionable to me is Etsy using their “creative marketing” tactics direct to sellers (I do have a shop so I’ve seen all the communications) to suggest sellers increase product prices to absorb shipping costs (or even take a hit to their income w/o price adjustments) and offer free shipping or free shipping for purchases over $35 for a boost in product search placement. But in the end the GMS will be inflated! And that’s what the financial community wants to see – so who does this decision really serve?
Can you say more? How will encouraging sellers to offer free shipping on orders over $35 inflate GMS?
Abby, Etsy’s response to seller concerns over the push to offer free shipping has been to suggest that sellers increase the price of their products to help cover the shipping charges. If I was selling 100 products at $20 each and charging $5 in shipping, the GMS from my sales would have been $2,000. Now, if I increase my prices to $25 each with free shipping, the GMS from my sales would now be $2,500. Now Etsy gets to tell everyone that their GMS has increased when it is only higher because the shipping cost is now hidden in it.
Thank you Amanda for providing the detailed outline that was calculating in my mind. I just didn’t convey my message well but you cleared that all up.
Oh, I see. That’s an interesting point. They did say in the earnings call that they feel a percentage of sellers will not increase their prices enough to cover the full cost of shipping. As a result, their total take in fees will actually dip down for a quarter (since fees are assessed on both transactions and on shipping), but that over time the total number of transactions and the amount of those transactions will increase enough to cover that dip.
It doesn’t matter if the seller ups the price a bit to cover some or all of the shipping costs. It’s not Etsy’s problem and they are very clear about them not being involved in the decision making one makes about how you run your shop. The point is the way Etsy suggests, guides, informs, tells sellers what or what not to do about this “free shipping” component – at the end of the day the carrot and stick are dangled in a rather disingenuous tactic. Selective stores will jump into the pot. Up the price and therefore like Amanda calculated GMS goes up – it’s inflated by the nature of Ety’s strong arm tactics that are subtle in their lawyering language around how to approach the free shipping offering. Etsy is not really customer focused on sellers or buyers. And frankly if they were generating the extra revenue how about creating a call center that does provide real help!
I honestly prefer separate Etsy Ads and Google Ads system, because I prefer to advertise on Etsy Ads only. What if I don’t want to advertise on Google? Also, I would prefer to set up on my own how much $ I want to advertise on Etsy Ads and $ on Google Ads; not the system doing that automatically for me and me not even being aware where the money goes. As I mentioned earlier I prefer to advertise on Etsy Ads.
Regards
I really hope that we will have the option to advertise on Etsy Ads and Google Ads separately. I think we have the right to be able to make the choice.
Also, right now it is not possible to see the clicks for specific day. The system only allows to see the Clicks from such and such date. I prefer the old way, so I can see where the money goes.
Thank you