Etsy Inc (NASDAQ:ETSY), a marketplace where people around the world connect, both online and offline, to make, sell and buy unique goods, today announced financial results for its fourth quarter and full year ended December 31, 2015.
“We are proud of our progress in 2015. We hit many important milestones that are the building blocks for long-term, sustainable growth,” said Chad Dickerson, Etsy, Inc. CEO and Chairman. “We executed against our strategic priorities, particularly in mobile, where we began to narrow the gap between mobile visits and mobile GMS. We also enhanced our existing seller services and continued to bring new constituents into the Etsy Economy. All of this activity allowed Etsy to generate $2.4 billion in GMS in 2015 and support approximately 1.6 million active sellers and more than 24.0 million active buyers. In 2016, we remain committed to reimagining commerce and are focused on launching more products and services that will allow us to build long-term value for our community.”
Fourth Quarter 2015 Operational Highlights
GMS was $741.5 million, up 21.3% compared with the fourth quarter of 2014. Growth in GMS was driven by 15.5% year-over-year growth in active sellers and 21.4% year-over-year growth in active buyers. Continuing the trend we’ve seen for multiple quarters, mobile visits once again grew faster than desktop visits and, for the second consecutive quarter, we narrowed the gap between mobile visits and mobile GMS. Percent mobile visits was approximately 61% compared with approximately 56% in the fourth quarter of 2014 and percent mobile GMS was approximately 44% compared with approximately 38% in the fourth quarter of 2014. Throughout 2015, we continued to enhance our buyer mobile apps in many ways such as adding new deeplinking functionality, integrating social sign-up and sign-in, and expanding our mobile payment and digital wallet options with Apple Pay® and Google Wallet™. We believe this work strengthened our mobile footprint and contributed to our strong year-over-year GMS growth on our buyer mobile app, which further narrowed the gap between mobile visits and mobile GMS during the fourth quarter.
We continue to believe that we can grow international GMS, over time, to represent 50% of our total GMS and that the impact of currency exchange rates contributed to the year-over-year decline in percent international GMS, which was 29.2% in the fourth quarter of 2015. Percent international GMS was 29.3% in the third quarter of this year.
We believe that our GMS growth and percent international GMS are impacted by currency exchange rates in two ways. First, approximately 11% of our GMS comes from goods that are not listed in U.S. dollars and, as a result, is subject to the impact of currency exchange fluctuations. The percentage of GMS from goods that are not listed in U.S. dollars is slightly higher than what we reported in the third quarter of 2015. Excluding this direct impact, on a currency-neutral basis, GMS growth in the fourth quarter of 2015 would have been 22.7%, or approximately 1.4 percentage points higher than the as-reported 21.3% growth.
Second, we believe weaker local currencies in key international markets continued to dampen the demand for U.S. dollar-denominated goods during the fourth quarter of 2015. For example, during the fourth quarter of 2015, GMS from international buyers purchasing from U.S. sellers declined approximately 13% year-over-year, compared with an approximately 13% and 6% year-over-year decline in the third and second quarters of 2015, approximately flat year-over-year performance in the first quarter of 2015, and approximately 23% and 44% year-over-year growth in the fourth and third quarters of 2014 respectively. In contrast, excluding our French marketplace ALM, GMS from international buyers making purchases from sellers in their own country grew approximately 49% year-over-year during the fourth quarter of 2015.
Taken together, we estimate that the impact of currency translation on goods not listed in U.S. dollars and the impact of currency exchange rates on international buyer behavior reduced our year-over-year GMS growth rate by approximately two percentage points in the fourth quarter.
Fourth Quarter 2015 Financial Highlights
Total revenue was $87.9 million, up 35.4% year-over-year, driven by growth in both Marketplace and Seller Services revenue. Marketplace revenue grew 19.5%, primarily due to growth in transaction fee revenue and, to a lesser extent, growth in listing fee revenue. Seller Services revenue grew 53.9% year-over-year, due to growth in revenue from both Direct Checkout, which benefited from the integration of PayPal early in the fourth quarter, and Promoted Listings, which grew at a slightly lower rate than Direct Checkout. Seller Services revenue also benefited from growth in revenue from Shipping Labels, which continued to grow faster than Marketplace revenue in the fourth quarter.
Gross profit for the fourth quarter was $57.7 million, up 36.9% year-over-year, and gross margin was 65.6%, up 70 bps compared with 64.9% in the fourth quarter of 2014. Similar to the first, second and third quarters of 2015, gross profit grew faster than revenue in the fourth quarter because of the leverage we achieved in employee-related and hosting and bandwidth-related costs as well as the continued strong growth of Promoted Listings, a higher-margin revenue stream.
Total operating expenses were $49.3 million in the fourth quarter, up 17.5% year-over-year. Total operating expenses as a percent of revenue declined to 56.1% in the fourth quarter of 2015 compared with 64.6% in the fourth quarter of 2014, as revenue growth continued to outpace operating expense growth.
The overall increase in operating expenses was primarily driven by the planned increase in reported marketing expenses, which grew 53.8% year-over-year mostly due to increased spending on digital marketing, which is currently focused on product listing ads. The year-over-year growth rate in fourth quarter marketing expenses decelerated relative to the growth rate of marketing expenses during the fourth quarter of 2014, which was 95.5%.
Product development expenses grew 15.3% year-over-year, primarily due to higher employee-related expenses. G&A expenses decreased 11.5% year-over-year. The year-over-year reduction in G&A expenses reflects the favorable impact of a mark-to-market adjustment related to ALM stock-based compensation and a reduction in bad debt expense.
Non-GAAP Adjusted EBITDA for the fourth quarter was $14.0 million and grew 51.1% year-over-year. Adjusted EBITDA margin was 16.0%, up 170 bps year-over-year.
Net loss for the fourth quarter of 2015 was $4.2 million, compared with a $5.4 million net loss in the fourth quarter of 2014. Etsy’s net loss in the fourth quarter of 2015 was impacted by a foreign exchange loss and our income tax provision. We recorded $6.0 million of foreign exchange loss in the fourth quarter of 2015 largely made up of a non-cash currency loss related to the revised global corporate structure that we implemented on January 1, 2015. We also recorded a $6.3 million tax provision in the fourth quarter of 2015 primarily driven by non-cash charges related to our revised global corporate structure.
Net cash provided by operating activities was $10.2 million in the fourth quarter of 2015 compared with $0.1 million in the fourth quarter of 2014. The increase in net cash provided by operating activities for the quarter was mainly due to the timing of payments to certain vendors.
Cash, marketable securities and short-term investments were $292.9 million as of December 31, 2015.
3-Year Financial Guidance
“We believe Etsy has significant opportunity ahead and we remain committed to delivering long-term, sustainable growth to all our stakeholders. One of our key values at Etsy is open and transparent communication. In that spirit, we are providing this additional long-term guidance to better demonstrate how we believe our strategic initiatives will translate to our financial results over the next three years,” said Kristina Salen, Etsy, Inc. CFO.
Over the next three years we believe we can deliver solid revenue growth and achieve leverage in our cost structure to expand our margins.
- We expect to achieve a three-year revenue CAGR in the 20-25% range and a three-year GMS CAGR in the 13-17% range. In 2016, we expect revenue growth to be at the high end of our three-year range and GMS growth to be near the mid-point of our three-year range. We anticipate that the key factors impacting revenue and GMS growth over the next three years include:
- Further narrowing of the gap between mobile visits and mobile GMS
- Stable percent international GMS, assuming that currency remains stable compared to average levels in December 2015
- Continued revenue growth in our existing seller services, driven by both adoption and product enhancements
- Modest contributions from new product launches and seller services
- We expect to exit 2018 with a full-year gross margin that is in the mid-60s percent range, and that 2016 gross margin will be in this range as well. We anticipate that the key factors impacting our gross margin forecast over the next three years include:
- Continued revenue growth in our existing seller services, driven by both adoption and product enhancements
- The impact from new seller services that we intend to launch
- We also expect to gain leverage in our operating cost structure over the next three years, particularly within marketing spend.
- In 2016, we expect marketing expense as a percent of revenue to decline, but that overall operating expenses as a percent of revenue will increase driven by expenses associated with our new headquarters and with Sarbanes-Oxley compliance.
- Finally, from an Adjusted EBITDA margin perspective, we estimate that our margin in 2016 will be comparable to 2015 in the 10-11% range and that it will expand to the high teens range by the end of 2018. (Original Source)
Shares of Etsy jumped nearly 15% in after-hours trading. ETSY has a 1-year high of $35.74 and a 1-year low of $6.04. The stock’s 50-day moving average is $7.43 and its 200-day moving average is $10.73.
On the ratings front, Etsy has been the subject of a number of recent research reports. In a report issued on February 17, Brean Murray Carret analyst Tom Forte reiterated a Buy rating on ETSY, with a price target of $20, which implies an upside of 170.6% from current levels. Separately, on December 22, Roth Capital’s Darren Aftahi initiated coverage with a Sell rating on the stock and has a price target of $5.75.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Tom Forte and Darren Aftahi have a total average return of -39.0% and -3.2% respectively. Forte has a success rate of 9.8% and is ranked #3633 out of 3638 analysts, while Aftahi has a success rate of 53.2% and is ranked #2832.
Etsy Inc operates a marketplace where people around the world connect, both online and offline, to make, sell and buy goods.