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Etsy, Inc. Reports Third Quarter 2015 Financial Results

The following excerpt is from the company's SEC filing.

Brooklyn, NY - November 3, 2015 - 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

quarter 2015, ended

September 30, 2015

“During the

quarter the growth in the Etsy Economy continued, and we generated more than

$1.6 billion

in GMS year-to-date and supported more than

1.5 million

active sellers and

22.6 million

active buyers," said Chad Dickerson, Etsy, Inc. CEO and Chairman. "We are looking forward to a great holiday season and are continuing to innovate and build new products and services on our platform that empower Etsy's creative entrepreneurs to succeed on their own terms. Our commitment to reimagining commerce, our understanding of the needs of artisans and our dedication to our vibrant community will continue to differentiate the Etsy marketplace from all others."

Third Quarter

Financial Summary

(in thousands)

Three Months Ended

September 30,

% Growth Y/Y

Nine Months Ended










Marketplace revenue





Seller Services revenue





Adjusted EBITDA



Active sellers

Active buyers



Percent mobile visits

Percent mobile GMS

Percent international GMS

For information about how we define these metrics, see our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 filed with the SEC on August 6, 2015.

Operational Highlights

GMS was

$568.8 million

compared with the

quarter of

. Growth in GMS was driven by

year-over-year growth in active sellers and

year-over-year growth in active buyers. During the third quarter, Etsy continued to strengthen its mobile footprint and mobile visits continued to grow faster than desktop visits. Percent mobile visits was approximately

compared with approximately

and percent mobile GMS was approximately

. This compares with percent mobile visits of approximately 60% and percent mobile GMS of approximately 43% in the second quarter of 2015. As a result of our strong year-over-year GMS growth on our buyer mobile app, we continued to make progress in narrowing the gap between mobile visits and mobile GMS.

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

. Percent international GMS was 30.2% in the

quarter of this year.

We believe our GMS growth and percent international GMS are impacted by currency exchange rates in two ways. First, approximately

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 consistent with what we reported in the second quarter of 2015. Excluding this direct impact, on a currency-neutral basis, GMS growth in the

would have been

or approximately

percentage points higher than the as-reported


Second, we believe weaker local currencies in key international markets continued to dampen the demand for U.S. dollar-denominated goods during the

. For example, during the

, GMS from international buyers purchasing from U.S. sellers declined approximately

year-over-year, compared with an approximate 6% year-over-year decline in the

and approximately 0.3%, 23% and 43% year-over-year growth in the first quarter of 2015, and 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

year-over-year during the

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 three to five percentage points in the


Financial Highlights

Total revenue was

$65.7 million

year-over-year, driven by growth in both Marketplace and Seller Services revenue. Marketplace revenue grew

, primarily due to growth in transaction fee revenue and, to a lesser extent, growth in listing fee revenue. Seller Services revenue grew

year-over-year, primarily due to growth in revenue from Promoted Listings, which continued to benefit from the re-launch of the product at the end of the third quarter of 2014. Seller Services revenue also benefited from growth in revenue from Direct Checkout and Shipping Labels, which both grew faster than GMS in the third quarter.

Gross profit for the

quarter was

$41.5 million

year-over-year, and gross margin was

120 bps

quarter of 2014. Similar to the first and second quarters of

, gross profit grew faster than revenue in the

quarter because of leverage in the cost of revenue for employee-related costs. In addition, growth of a higher-margin revenue stream, Promoted Listings, outpaced growth of lower-margin Direct Checkout revenue.

Total operating expenses were

$43.2 million

quarter, up

year-over-year. Total operating expenses as a percent of revenue declined to

, 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

year-over-year mostly due to increased spending on product listing ads and employee-related expenses within our seller development and brand design cost centers. Year-over-year growth in reported marketing expenses in the third quarter of 2015, as well as in the first and second quarters of 2015, was also impacted by business changes and reorganizations that occurred in September 2014, when we moved certain expenses, such as brand design, brand research and seller development, into marketing expenses, most of which had previously been recorded in product development. Excluding the impact of these changes, comparable marketing expenses in the third quarter of 2015 grew 74.0% year-over-year. For reference, excluding the impact of the business changes and reorganizations, year-over-year comparable marketing expenses grew approximately 45% in the first quarter of 2015 and approximately 57% in the second quarter of 2015.

Reported product development expenses grew

year-over-year, primarily due to higher employee-related expenses. Similar to reported marketing expenses growth, year-over-year growth in reported...