Etsy, the global marketplace for handcrafted and creative goods, said in its first-quarter earnings results that the “incredible momentum” it experienced last year amid pandemic-related lockdowns continued into the first quarter, but the company warned that its triple-digit pace of growth would decelerate along with a broader projected slowdown in eCommerce.
For the three months ending March 31st, the Brooklyn-based operator of the world’s fourth busiest marketplace said its gross merchandise sales (GMS) — excluding its Reverb musical instrument division — rose 144 percent to $2.9 billion last quarter as its roster of active buyers nearly doubled to more than 90 million customers.
At the same time, Etsy said its seller base rose nearly 70 percent to 4.7 million, and that its 17.5 percent average commission on sales lifted its revenue by 141 percent to $550 million.
“Last year, the world took notice of Etsy’s highly differentiated value proposition, and that incredible momentum has continued into the first quarter of 2021,” Etsy CEO Josh Silverman said before confirming that the scorching pace of growth was not sustainable.
“We currently expect Q2 2021 GMS to decelerate along with the rest of eCommerce as we lap the tremendous 2020 growth rates,” Silverman said in projecting 5 percent to 15 percent growth in the value of all items sold, with the pace of revenue expansion slowing to 15 percent to 25 percent.
Keeping Customers
Like many of its eCommerce and marketplace peers, Etsy has long been trying to figure out how to retain as much of the pandemic-era surge in business it experienced over the past year as possible now that more businesses are starting to fully reopen, and life is starting to return to normal.
One area of focus that Etsy highlighted in its investor presentation was the need to keep improving its search capabilities, which have risen to 86 percent of purchases being made from the first page of search results, up from 77 percent in 2018.
In addition, the company is also looking to grow its video listings on its site, which have gone from 200,000 in Q2 last year to 1.7 million in Q4 2020 to over 5 million in Q1 2021.
The company’s mission is to “keep human connection at the heart of commerce,” and it appears to be working as 90 percent of its buyers agreed that Etsy has items that can’t be found anywhere else. However, despite that favorable rating, the company is also looking to improve the number of browsers who become active buyers, noting that 52 percent of customers shop only once a year.
Its best “habitual buyers” who shop over six times per year and account for only 9 percent of the customer base, account for over 40 percent of GMS. Etsy said this important cohort, which spends at least $200 on purchases annually, grew 205 percent, the highest ever growth for this buyer segment.
Etsy also said that its increased marketing and retention efforts saw over 16 million former customers reactivating the accounts after not making a purchase in a year or more.
“In Q1, we launched a new TV ad campaign, expanded our performance marketing channels that continued to drive efficiencies,” Chief Financial Officer Rachel Glaser told investors on the company’s webcast, noting that marketing spend more than tripled to $151 million.
“There’s never been a better time for us to lean into advertising and gain share,” she added.
Additionally, Etsy mobile users grew by five percentage points to 63 percent, while its international GMS rose six percentage points, accounting for 42 percent of total sales.
The Two-Year Stack
While Etsy’s decelerating growth forecast comes in the wake of similarly cautious guidance recently from eCommerce peers like Google, Facebook, Amazon and Shopify, the company is stressing the point that its long-term growth trends are still intact.
After growing GMS throughout 2020 and culminating in record full-year results, Glaser reminded investors that year-over-year comparisons would get steeper going forward, along with the projected deceleration of eCommerce growth, the absence of a stimulus tailwind, and the potential future impact of business reopenings, which all imply that growth rates will slow down.
However, Glaser urged investors to compare 2021 to 2019, saying that using the “two-year stack” approach gives a better representation of the stability and sustained momentum that Etsy has seen in its growth trends.
By removing the anomaly growth of 2020, Glaser said Etsy’s latest Q2 forecast implies 170 percent growth at the midpoint of the guidance range, an incremental $2 billion gain in GMS from two years ago and a much milder deceleration.
Attracting Sellers
Etsy also released the results of its annual census, which showed the impact that the pandemic had on its global networks of sellers, including findings that showed 44 percent of sellers said they started their business in the past year due to COVID-19, and 62 percent of sellers said their income was steady or higher, with nearly three-quarters of sellers reporting they had quadrupled their number of sales.
Demographically, 81 percent of Etsy’s sellers are women, 83 percent are sole owners, and 97 percent operate their businesses out of their homes.
Shares of Etsy fell at least 10 percent following the company’s earnings and guidance, extending a six-week slump that has seen its stock fall more than 25 percent since hitting an all-time high March 1. Even so, shares of Etsy have risen more than 150 percent in the past year, valuing the 15-year-old marketplace at roughly $23 billion.
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