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.

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