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Mobile growth drives Etsy’s sales nearly 25% higher in Q2

August 5, 2015 02:01 PM
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Etsy Inc. has invested heavily in its mobile apps, and those investments paid off in the second quarter with significantly higher traffic and sales from mobile devices.

The operator of an online marketplace for handmade goods reported Tuesday that mobile devices accounted for 60% of the traffic and 43% of the sales in the second quarter, both figures seven percentage points higher than during the same quarter last year. Sales on Etsy’s marketplace, what the company refers to as gross merchandise sales, or GMS, increased 24.6% year over year.

“Etsy’s second-quarter results demonstrate our continued year-over-year progress in narrowing the gap between mobile visits and mobile GMS and highlighted the results of continued improvements in our mobile app offerings,” chief financial officer Kristina Salen told analysts on a conference call, according to a transcript from SeekingAlpha.

Despite the growth in its second quarterly report since going public in April, investors hammered Etsy’s stock today, driving its share price lower by about 20% in midday trading. Among the concerns was the relatively small number of new buyers on Etsy in the second quarter compared to the first quarter. “Etsy added 860,000 buyers sequentially, the lowest sequential growth in 10 quarters of history,” analysts Brian Nowak, Owen Hyde and Michael Costantini, of Morgan Stanley & Co. LLC, wrote in a note to investors. They also noted customer acquisition costs rose by 34% year over year. “Etsy is having to spend more to grow,” they wrote.

Etsy officials responded that customer acquisition picks up during the holiday season and that the increase in marketing expenses was related to higher spending on Google Product Listing ads, which show product images and other information prominently on the Google search results page. Spending also rose with the addition of employees. They say the pace of growth in the company's marketing spend is decreasing.

Other observers predicted that Amazon.com Inc. will be successful in its efforts to woo sellers from Etsy to its Handmade at Amazon site launched in May. Gil Luria, an analyst at Wedbush Securities Inc. wrote in a note to investors that many Etsy sellers are frustrated by the growing number of mass-produced and counterfeit goods being offered on Etsy. He said Amazon offers better value to sellers through its competitive commission structure, the chance to offer free shipping to members of Amazon Prime “and most importantly—a commitment to purely handmade items.”

Amazon.com is No. 1 in the Internet Retailer 2015 Top 500 and Etsy No. 24.

While not discounting the threat from Amazon, Tom Forte, a senior vice president and senior analyst at Brean Capital who follows Etsy and several other e-retail stocks, doubts Etsy buyers and sellers are going to flock to a mass marketplace like Amazon. “Etsy buyers and sellers don’t want to be part of an Amazon, eBay, Alibaba or Wal-Mart,” he says. “They want to maintain this community element. That’s what makes it special.”

Forte also notes that Etsy is generating solid revenue growth by offering services to its sellers, such as advertising that promotes their items in search results, credit and debit card processing, and printing shipping labels. Etsy’s seller service revenue grew 79.5% in the second quarter to $29.8 million, representing 49.4% of revenue. The remaining 50.6% of revenue came from Etsy’s 20-cent listing fee and 3.5% commission on sales. That marketplace revenue increased 23.0% to $30.5 million.

Etsy executives reported an encouraging initial response to a new way of searching Etsy introduced last week. Called Exploratory Search, the feature is designed to makes it easier to browse among the 30 million SKUs on Etsy.com by such categories as wedding or home. Chairman and CEO Chad Dickerson told analysts early tests show “more than a 10% overall increase in key search engagement metrics like listing click-through rates, with an even more pronounced effect on mobile web.”

He also reported success in promoting the Etsy mobile app, which has been downloaded 28 million times versus 25 million at the end of the first quarter. Dickerson said Etsy has been working hard to drive consumers to the mobile app because they are more likely to buy in the app than on the Etsy mobile site.

He highlighted two initiatives related to the mobile app. One is Google App indexing, which takes a consumer using an Android phone directly from an organic search result on Google.com to the relevant page within the Etsy app. Etsy also began in the first quarter a “deep-linking” project, which directs shoppers who have downloaded the Etsy app into the app whenever they encounter an Etsy link.

“Both Google App indexing and deep-linking quickly take Etsy buyers using the mobile web to the best and most productive experience for them, our mobile apps,” he said.

For the second quarter, Etsy reported:

  • Gross merchandise sales of $546.2 million, up 24.6% from $438.5 million in the same quarter last year. Without the impact of currency fluctuations, mainly the stronger U.S. dollar, Etsy says its GMS would have increased 26.5% year over year.
  • Revenue increased 44.5% to $61.4 million from $42.5 million.
  • Active sellers increased 24.6% to 1.484 million from 1.191 million.
  • Active buyers increased 30.8% to 21.697 million from 16.587 million.
  • EBITDA (earnings before interest, taxes, depreciation and amortization) of $4.061 million, an 18.3% increase from $3.432 million.
  • A net loss of $6.354 million, slightly more than double a loss of $3.151 million in the same quarter a year earlier.

For the first six months of 2015, Etsy reported:

  • Gross merchandise sales increased 26.3% to $1.078 billion from $853.3 million.
  • Revenue of $119.9 million, an increase of 44.4% from $83.0 million.
  • EBITDA of $10.7 million, up 12.6% from $9.5 million.
  • A net loss of $42.9 million compared with a loss of $3.6 million in the first half of 2014. Etsy took large accounting charges in the first quarter of 2015 in order to pave the way for international expansion, the company said in reporting Q1 results in May.
 

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