ETSY, INC.
You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed consolidated financial
statements and related notes and other financial information included elsewhere
in this Quarterly Report on Form 10-Q ("Quarterly Report") and with the audited
consolidated financial statements included in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission ("SEC") on February 25, 2022
(the "Annual Report"). This discussion, particularly information with respect to
our outlook, key trends and uncertainties, our plans and strategy for our
business, and our performance and future success, includes forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from those discussed below. Factors that could cause or contribute to
these differences include those discussed below and elsewhere in this Quarterly
Report, particularly in Part II, Item 1A, "Risk Factors." We also believe that
our performance and future success depend on a number of factors that present
significant opportunities for us, as discussed in Part I, Item 1, "Business," in
our Annual Report, which we incorporate by reference.
Overview
Business
Etsy operates two-sided online marketplaces that connect millions of passionate
and creative buyers and sellers around the world. These marketplaces - which
collectively create a "House of Brands " - share our mission, common levers for
growth, similar business models, and a strong commitment to use business and
technology to strengthen communities and empower people.
Our primary marketplace, Etsy.com, is the global destination for unique and
creative goods made by independent sellers. The Etsy marketplace connects
creative artisans and entrepreneurs with thoughtful consumers looking for items
that are a joyful expression of their taste and values. Our sellers are the
heart and soul of Etsy, and our technology platform allows our sellers to turn
their creative passions into economic opportunity. We have a seller-aligned
business model: we make money when our sellers make money. We offer Etsy.com
sellers a marketplace with tens of millions of buyers along with a range of
seller tools and services that are specifically designed to help our creative
entrepreneurs generate more sales and scale their businesses.
Buyers come to the Etsy marketplace for meaningful, one-of-a-kind items
handcrafted and curated with passion and expertise by our creative
entrepreneurs. We are focused on attracting potential buyers to Etsy for
everyday items that have meaning and those "special" purchase occasions that
happen throughout the year. These include items that reflect an individual's
unique style; gifting that demonstrates thought and care; and celebrations that
express creativity and fun.
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In addition to our core Etsy marketplace, our "House of Brands " consists of
Reverb Holdings, Inc. ("Reverb"), our musical instrument marketplace, Depop
Limited ("Depop"), our fashion resale marketplace, and Elo7 Serviços de
Informática S.A. ("Elo7"), our Brazil -based marketplace for handmade and unique
items. Each of our marketplaces operates independently, while benefiting from
shared expertise in product, marketing, technology, and customer support. The
results of Elo7 and Depop , acquired on July 2, 2021 and July 12, 2021 ,
respectively, are included in all financial and other metrics discussed in this
report, unless otherwise noted, from their respective dates of acquisition.
Accordingly, our condensed consolidated financial statements for the second
quarter of 2021 and related discussions of this period do not include the
results of Depop and Elo7.
We generate revenue primarily from marketplace activities, including transaction, listing, and payments processing fees, and optional services, which include on-site advertising and shipping labels.
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Our strategy is focused around:
•Building a sustainable competitive advantage - our "Right to Win;"
•Growing the Etsy marketplace in our seven core geographies; and
•Leveraging our marketplace expertise and playbook across our "
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Our investments in technology infrastructure, product development, marketing,
trust and safety, member support, sellers tools and education, and other areas
support our strategy, which you can read more about in our Annual Report.
Second Quarter 2022 Financial Highlights
As ofJune 30, 2022 , our marketplaces connected 7.4 million active sellers and 93.9 million active buyers in nearly every country in the world. In the three and six months endedJune 30, 2022 , sellers generated GMS of$3.0 billion and$6.3 billion , respectively, of which approximately 66% in each period came from purchases made on mobile devices. We are a global company and approximately 43% and 44%, respectively, of our GMS in the three and six months endedJune 30, 2022 came from transactions in which either a seller or a buyer or both was located outside ofthe United States . Total revenue was$585.1 million and$1.2 billion in the three and six months endedJune 30, 2022 , respectively, driven by growth in both Marketplace and Services revenue. In the three and six months endedJune 30, 2022 , we recorded net income of$73.1 million and$159.2 million , respectively, and non-GAAP Adjusted EBITDA of$162.7 million and$321.9 million , respectively. See "Non-GAAP Financial Measures" for a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated in accordance with GAAP. Cash and cash equivalents and short-term investments were$1.0 billion as ofJune 30, 2022 . As ofJune 30, 2022 , we had outstanding$1.0 billion aggregate principal amount of 0.25% Convertible Senior Notes due 2028 (the "2021 Notes"),$650.0 million aggregate principal amount of 0.125% Convertible Senior Notes due 2027 (the "2020 Notes"), and$649.9 million aggregate principal amount of 0.125% Convertible Senior Notes due 2026 (the "2019 Notes" and together with the 2021 Notes, 2020 Notes, and the 0% Convertible Senior Notes due 2023 (the "2018 Notes"), the "Notes"). Additionally, we have the ability to draw down on our$200.0 million senior secured revolving credit facility. In the six months endedJune 30, 2022 , we had positive operating cash flows of$185.3 million .
Etsy Marketplace Transaction Fee Increase
EffectiveApril 11, 2022 , we increased our seller transaction fee from 5% to 6.5%, in alignment with our plan to invest even more in making Etsy the best place to run a creative business. We are investing most of the incremental revenue from this fee increase in marketing, seller tools, and creating world-class customer experiences.
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Key Operating and Financial Metrics
We collect and analyze operating and financial data to evaluate the health and performance of our business and allocate our resources (such as capital, people, and technology investments). The financial results ofDepop and Elo7 have been included in our condensed consolidated financial results ("Consolidated") fromJuly 12, 2021 andJuly 2, 2021 (the respective dates of acquisition), respectively. Accordingly, our condensed consolidated financial results for the three and six months endedJune 30, 2021 and related discussions of this period do not include the results ofDepop and Elo7. We are providing Etsy.com standalone information in certain instances where particularly relevant. The unaudited GAAP and non-GAAP financial measures and key operating metrics we use are: Three Months Ended % (Decline) Six Months Ended % Growth June 30, Growth June 30, (Decline) 2022 2021 Y/Y 2022 2021 Y/Y (in thousands, except percentages) GMS (1)$ 3,029,777 $ 3,041,490 (0.4) %$ 6,282,164 $ 6,184,662 1.6 % Revenue$ 585,135 $ 528,900 10.6 %$ 1,164,401 $ 1,079,546 7.9 % Marketplace revenue$ 439,549 $ 395,463 11.1 %$ 867,240 $ 809,105 7.2 % Services revenue$ 145,586 $ 133,437 9.1 %$ 297,161 $ 270,441 9.9 % Gross profit$ 413,714 $ 379,931 8.9 %$ 819,985 $ 787,660 4.1 % Operating expenses$ 341,153 $ 290,826 17.3 %$ 663,109 $ 547,918 21.0 % Net income$ 73,123 $ 98,254 (25.6) %$ 159,232 $ 242,020 (34.2) % Adjusted EBITDA (Non-GAAP)$ 162,704 $ 139,474 16.7 %$ 321,902 $ 323,542 (0.5) % Adjusted EBITDA margin (Non-GAAP) 28 % 26 % 200 bps 28 % 30 % (200) bps Active sellers (2) 7,403 5,233 41.5 % 7,403 5,233 41.5 % Active buyers (2) 93,947 90,490 3.8 % 93,947 90,490 3.8 % Percent mobile GMS 66 % 63 % 300 bps 66 % 63 % 300 bps Percent non-U.S. GMS (1) 43 % 41 % 200 bps 44 % 41 % 300 bps (1)Consolidated GMS for the three and six months endedJune 30, 2022 includes Etsy.com GMS of$2.6 billion and$5.5 billion , respectively. Percent non-U.S. GMS for Etsy.com for the three and six months endedJune 30, 2022 was 44% and 45%, respectively.
(2)Consolidated active sellers and active buyers includes Etsy.com active
sellers and active buyers of 5.3 million and 88.1 million, respectively, as of
GMS
Gross merchandise sales ("GMS") is the dollar value of items sold in our
marketplaces within the applicable period, excluding shipping fees and net of
refunds associated with canceled transactions. GMS does not represent revenue
earned by us. GMS is largely driven by transactions in our marketplaces and is
not directly impacted by Services activity. However, because our revenue and
cost of revenue depend significantly on the dollar value of items sold in our
marketplace, we believe that GMS is an indicator of the success of our sellers,
the satisfaction of our buyers, and the health, scale, and growth of our
business. We track "Paid GMS" for the Etsy marketplace and define it as Etsy.com
GMS that is attributable to our performance marketing efforts, which excludes
most of our marketing investments focused on brand awareness like TV and digital
video.
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GMS decreased$11.7 million to$3.0 billion and increased$97.5 million to$6.3 billion in the three and six months endedJune 30, 2022 , respectively, compared to the three and six months endedJune 30, 2021 , respectively. The slight decline in GMS between the three months endedJune 30, 2022 and 2021 was primarily driven by a decrease in GMS for the Etsy.com marketplace, partially offset by our acquisitions ofDepop and Elo7 in the third quarter of 2021. The growth in GMS between the six months endedJune 30, 2022 and 2021 was primarily driven by our acquisitions ofDepop and Elo7 in the third quarter of 2021, partially offset by a decline in GMS for the Etsy.com marketplace. Etsy.com marketplace GMS was down compared to the very high Etsy.com marketplace GMS for the first half of 2021. Consolidated GMS was impacted by macro headwinds including reopening, pressures on consumer discretionary spending, foreign exchange rate volatility, and ongoing geopolitical events. As ofJune 30, 2022 , habitual buyers, or Etsy.com buyers who have spent$200 or more and made purchases on six or more days in the previous 12 months, declined slightly compared toJune 30, 2021 to 7.8 million. Additionally, on a consolidated basis we experienced the following (decline)/growth in both new buyer and existing buyer GMS in the periods presented: Three Months Ended June 30, 2022 2021 % (Decline) % (Decline) Growth Growth Y/Y % of GMS Y/Y % of GMS New Buyer GMS (1) (14) % 12 % (14) % 14 % Existing Buyer GMS 2 % 88 % 19 % 86 % Six Months Ended June 30, 2022 2021 % (Decline) Growth % Growth Y/Y % of GMS Y/Y % of GMS
New Buyer GMS (1) (15) % 12 % 26 % 14 % Existing Buyer GMS 4 % 88 % 59 % 86 % (1)While new buyer GMS was down 14% and 15% year-over-year in the three and six months endedJune 30, 2022 , respectively, the number of new buyers we acquired in both the three and six months endedJune 30, 2022 remains significantly elevated when compared to pre-pandemic levels. Our growth may continue to be impacted in the second half of 2022 by macroeconomic factors beyond our control such as inflation, rising interest rates, foreign exchange rate volatility, pandemic related factors, retail businesses reopening, increased consumer spending on travel and other discretionary items, global geopolitical uncertainties, supply-chain induced gluts or shortages, and the absence of newU.S. and other government economic stimulus programs, among other things, as well as anticipated further year-over-year declines in our acquisition of new buyers.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA represents our net income adjusted to exclude: interest and other non-operating expense, net; provision (benefit) for income taxes; depreciation and amortization; stock-based compensation expense; foreign exchange (gain) loss; and acquisition-related expenses. Adjusted EBITDA margin is Adjusted EBITDA divided by revenue. See "Non-GAAP Financial Measures" for a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP financial measure. Active Sellers An active seller is a seller who has had a charge or sale in the last 12 months. Charges include Marketplace and Services revenue fees, discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Overview-Business." A seller is separately identified in each of our marketplaces by a unique e-mail address; a single person can have multiple seller accounts and can count as a distinct active seller in each of our marketplaces. Commencing in the third quarter of 2021, as part of our integration of theDepop and Elo7 marketplaces into our "House of Brands ," we expanded our definition of active sellers to include any seller who has had a sale in the last 12 months, even if no charge was incurred in connection with the sale. This update did not result in any change to prior period disclosures. We succeed when sellers succeed, so we view the number of active sellers as a key indicator of consumer awareness of our brands, the reach of our platforms, the potential for growth in GMS and revenue, and the health of our business. 30
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Table of Contents Active Buyers An active buyer is a buyer who has made at least one purchase in the last 12 months. A buyer is separately identified in each of our marketplaces by a unique e-mail address; a single person can have multiple buyer accounts and can count as a distinct active buyer in each of our marketplaces. We generate revenue when buyers order items from sellers, so we view the number of active buyers as a key indicator of our potential for growth in GMS and revenue, the reach of our platforms, consumer awareness of our brands, the engagement and loyalty of buyers, and the health of our business.
Mobile GMS
Mobile GMS is GMS that results from a transaction completed on a mobile device, such as a tablet or a smartphone. Mobile GMS excludes orders initiated on mobile devices but ultimately completed on a desktop. When calculating the percentage of mobile GMS, we do not take into account refunds associated with canceled transactions. We believe that mobile GMS indicates our success in converting mobile activity into mobile purchases and demonstrates our ability to grow GMS and revenue. During both the three and six months endedJune 30, 2022 , mobile GMS increased as a percentage of total GMS to approximately 66%, up from approximately 63% for both the three and six months endedJune 30, 2021 .
Non-
Non-U.S. GMS (formerly referred to as international GMS) is GMS from transactions in which either the billing address for the seller or the shipping address for the buyer at the time of sale is outside ofthe United States . When calculating percent non-U.S. GMS, we do not take into account refunds associated with canceled transactions. We believe that non-U.S. GMS shows the level of engagement of our community outsidethe United States and demonstrates our ability to grow GMS and revenue. For the three and six months endedJune 30, 2022 , non-U.S. GMS increased as a percentage of total GMS to approximately 43% and 44%, respectively, up from approximately 41% for both the three and six months endedJune 30, 2021 . Non-U.S. GMS increased approximately 5% and 8%, respectively, in the three and six months endedJune 30, 2022 compared to the three and six months endedJune 30, 2021 , respectively, or approximately 13% for both the three and six months endedJune 30, 2022 , on a currency-neutral basis, driven by our non-U.S. domestic trade route, which is GMS generated between a non-U.S. buyer and a non-U.S. seller both in the same country. Non-U.S. domestic GMS grew by approximately 18% and 16%, respectively, in the three and six months endedJune 30, 2022 compared with the three and six months endedJune 30, 2021 , respectively, driven primarily by our acquisitions ofDepop and Elo7 in the third quarter of 2021, partially offset by a decline in non-U.S. domestic GMS for the Etsy.com marketplace.
Currency-Neutral GMS Growth
We calculate currency-neutral GMS growth by translating current period GMS for
goods sold that were listed in non-
As reported and currency-neutral GMS growth for the periods presented below are
as follows:
Quarter-to-Date Period Ended Year-to-Date Period Ended
As Reported Currency-Neutral FX Impact As Reported Currency-Neutral FX Impact
June 30, 2022 (1) (0.4) % 2.6 % (3.0) % 1.6 % 3.7 % (2.1) %
March 31, 2022 (1) 3.5 % 4.8 % (1.3) % 3.5 % 4.8 % (1.3) %
December 31, 2021 (1) 16.5 % 16.9 % (0.4) % 31.2 % 29.6 % 1.6 %
September 30, 2021 (1) 17.9 % 16.6 % 1.3 % 39.2 % 36.5 % 2.7 %
June 30, 2021 13.1 % 10.2 % 2.9 % 53.0 % 49.5 % 3.5 %
(1) Includes the acquisitions of Depop and Elo7, which occurred during the third
quarter of 2021.
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Table of Contents Results of Operations The following tables show our results of operations for the periods presented and express the relationship of line items as a percentage of revenue for those periods. Our results include the operations of Elo7 sinceJuly 2, 2021 andDepop sinceJuly 12, 2021 (the respective dates of acquisition). Accordingly, our condensed consolidated financial results for the three and six months endedJune 30, 2021 and related discussions of this period do not include the results ofDepop and Elo7. The period-to-period comparison of historical financial results is not necessarily indicative of future results. For more information regarding the components of our results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Components of Our Results of Operations" in the Annual Report, which we incorporate by reference. Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (in thousands) Revenue: Marketplace$ 439,549 $ 395,463 $ 867,240 $ 809,105 Services 145,586 133,437 297,161 270,441 Total revenue 585,135 528,900 1,164,401 1,079,546 Cost of revenue 171,421 148,969 344,416 291,886 Gross profit 413,714 379,931 819,985 787,660 Operating expenses: Marketing 164,068 167,474 318,348 318,678 Product development 102,095 61,753 191,571 115,459 General and administrative 74,990 61,599 153,190 113,781 Total operating expenses 341,153 290,826 663,109 547,918 Income from operations 72,561 89,105 156,876 239,742 Other income (expense), net 601 (3,351) 2,273 3,740 Income before income taxes 73,162 85,754 159,149 243,482 (Provision) benefit for income taxes (39) 12,500 83 (1,462) Net income$ 73,123 $ 98,254 $ 159,232 $ 242,020 Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Revenue: Marketplace 75.1 % 74.8 % 74.5 % 74.9 % Services 24.9 25.2 25.5 25.1 Total revenue 100.0 100.0 100.0 100.0 Cost of revenue 29.3 28.2 29.6 27.0 Gross profit 70.7 71.8 70.4 73.0 Operating expenses: Marketing 28.0 31.7 27.3 29.5 Product development 17.4 11.7 16.5 10.7 General and administrative 12.8 11.6 13.2 10.5 Total operating expenses 58.3 55.0 56.9 50.8 Income from operations 12.4 16.8 13.5 22.2 Other income (expense), net 0.1 (0.6) 0.2 0.3 Income before income taxes 12.5 16.2 13.7 22.6 (Provision) benefit for income taxes - 2.4 - (0.1) Net income 12.5 % 18.6 % 13.7 % 22.4 % 32
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Comparison of Three Months Ended
Revenue
Three Months Ended
June 30, Change
2022 2021 $ %
(in thousands, except percentages)
Revenue:
Marketplace $ 439,549 $ 395,463 $ 44,086 11.1 %
Percentage of total revenue 75.1 % 74.8 %
Services $ 145,586 $ 133,437 $ 12,149 9.1 %
Percentage of total revenue 24.9 % 25.2 %
Total revenue $ 585,135 $ 528,900 $ 56,235 10.6 %
Revenue increased
Marketplace revenue increased$44.1 million to$439.5 million in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . This growth was substantially due to the impact of the pricing update to increase our seller transaction fee for the Etsy.com marketplace from 5% to 6.5% beginning onApril 11, 2022 . To a lesser extent, the increase in marketplace revenue was due to our acquisitions ofDepop and Elo7, which is reflected in the second quarter of 2022 and not in the prior year period. These increases were partially offset by an$11.7 million decrease in the volume of GMS for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily due to a decline in GMS for the Etsy.com marketplace. These drivers similarly impacted transaction fee revenue, which increased by 21.8%. The share of Etsy.com GMS processed through our Etsy Payments platform was 92% in both the three months endedJune 30, 2022 and 2021. Services revenue increased$12.1 million to$145.6 million in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The growth in Services revenue was primarily driven by an increase of 12.1% in on-site advertising revenue, which represented a significant majority of the overall Services revenue increase. The increase in advertising revenue was due to higher click volume on Etsy Ads and, to a lesser extent, an increase in average price per click. Cost of Revenue Three Months Ended June 30, Change 2022 2021 $ % (in thousands, except percentages) Cost of revenue$ 171,421 $ 148,969 $ 22,452 15.1 % Percentage of total revenue 29.3 % 28.2 % Cost of revenue increased$22.5 million to$171.4 million in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The increase was primarily driven by cloud-related hosting and bandwidth costs and employee compensation-related expenses, including stock-based compensation, mainly driven by an increase in average headcount, including an increase in headcount from the acquisitions ofDepop and Elo7 included in the second quarter of 2022. Additionally, cost of revenue increased due to the amortization of developed technology associated with theDepop and Elo7 acquisitions.
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Table of Contents Operating Expenses There were a total of 2,722 employees worldwide onJune 30, 2022 , compared with 1,598 employees worldwide onJune 30, 2021 and 2,402 employees worldwide onDecember 31, 2021 .June 30, 2022 andDecember 31, 2021 include employees from the acquisitions ofDepop and Elo7. We expect an increase in employee compensation-related expenses, including stock-based compensation, in future periods driven by headcount growth, including increases related to the acquisitions ofDepop and Elo7, and the issuance of equity awards as part of our compensation strategy. Marketing Three Months Ended June 30, Change 2022 2021 $ % (in thousands, except percentages) Marketing$ 164,068 $ 167,474 $ (3,406) (2.0) % Percentage of total revenue 28.0 % 31.7 % Marketing expenses decreased$3.4 million to$164.1 million in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 . The decrease was primarily driven by a decrease in Etsy.com marketplace digital marketing costs, which dynamically adjusts with demand which has slowed due to unfavorable macroeconomic headwinds. This decrease was offset in part by direct marketing costs related to the acquisitions ofDepop and Elo7 and in large part by both increased employee compensation-related expenses, including stock-based compensation, and by amortization of acquired intangible assets. The increase in employee compensation-related expenses was mainly driven by an increase in average headcount, including an increase in headcount from the acquisitions ofDepop and Elo7 included in the second quarter of 2022. Paid GMS was 20% of overall GMS in the three months endedJune 30, 2022 , up from 19% in the three months endedJune 30, 2021 . Product development Three Months Ended June 30, Change 2022 2021 $ % (in thousands, except percentages) Product development$ 102,095 $ 61,753 $ 40,342 65.3 % Percentage of total revenue 17.4 % 11.7 % Product development expenses increased$40.3 million to$102.1 million in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 primarily due to increased employee compensation-related expenses, including stock-based compensation, mainly driven by an increase in average headcount, including an increase in headcount from the acquisitions ofDepop and Elo7 included in the second quarter of 2022. General and administrative Three Months Ended June 30, Change 2022 2021 $ % (in thousands, except percentages) General and administrative$ 74,990 $ 61,599 $ 13,391 21.7 % Percentage of total revenue 12.8 % 11.6 % General and administrative expenses increased$13.4 million to$75.0 million in the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , primarily due to increased employee compensation-related expenses, including stock-based compensation, mainly driven by an increase in average headcount, including an increase in headcount from the acquisitions ofDepop and Elo7 included in the second quarter of 2022. This increase was partially offset by a decrease in acquisition-related expenses associated with theDepop and Elo7 acquisitions which closed inJuly 2021 .
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Other income (expense), net
Three Months Ended
June 30, Change
2022 2021 $ %
(in thousands, except percentages)
Other income (expense), net $ 601 $ (3,351) $ 3,952 (117.9) %
Percentage of total revenue 0.1 % (0.6) %
Other income, net was $0.6 million in the three months ended June 30, 2022 ,
which increased $4.0 million from other expense, net of $3.4 million in the
three months ended June 30, 2021 . The increase in income was primarily driven by
more favorable changes in U.S. dollar, Euro, Pound Sterling, and Canadian dollar
exchange rates in the current year versus less favorable changes in the exchange
rates for the same currencies in the prior year which impact our intercompany
and other non-functional currency cash balances. This was partially offset by
interest expense, which increased primarily due to the issuance of the 2021
Notes in the second quarter of 2021, and the amendment of the Brooklyn
headquarters lease in the fourth quarter of 2021.
(Provision) Benefit for Income Taxes
Three Months Ended
June 30, Change
2022 2021 $ %
(in thousands, except percentages)
(Provision) benefit for income taxes $ (39) $ 12,500 $ (12,539) (100.3) %
Percentage of total revenue - % 2.4 %
Our income tax provision and benefit for the three months ended
The primary drivers of our income tax provision for the three months endedJune 30, 2022 were tax expense on income before income taxes and state and local income taxes, partially offset by tax benefits from employee stock-based compensation of$3.3 million and a benefit related to research and development tax credits. The primary drivers of our income tax benefit for the three months endedJune 30, 2021 were tax benefits from employee stock-based compensation of$19.9 million and a benefit related to research and development tax credits of$2.8 million , partially offset by tax expense of$13.5 million on income before income taxes. 35
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Comparison of Six Months Ended
Revenue
Six Months Ended
June 30, Change
2022 2021 $ %
(in thousands, except percentages)
Revenue:
Marketplace $ 867,240 $ 809,105 $ 58,135 7.2 %
Percentage of total revenue 74.5 % 74.9 %
Services $ 297,161 $ 270,441 $ 26,720 9.9 %
Percentage of total revenue 25.5 % 25.1 %
Total revenue $ 1,164,401 $ 1,079,546 $ 84,855 7.9 %
Revenue increased $84.9 million to $1.2 billion in the six months ended June 30,
2022 compared to the six months ended June 30, 2021 , of which 74.5% consisted of
Marketplace revenue and 25.5% consisted of Services revenue.
Marketplace revenue increased $58.1 million to $867.2 million in the six months
ended June 30, 2022 compared to the six months ended June 30, 2021 . This growth
was substantially due to the impact of the pricing update to increase our seller
transaction fee for the Etsy marketplace from 5% to 6.5% beginning on April 11,
2022 . To a lesser extent, the increase in marketplace revenue was due to an
increase in the volume of GMS for the six months ended June 30, 2022 to a total
of $6.3 billion . The growth in volume of GMS was primarily due to our
acquisitions of Depop and Elo7 which is reflected in the six months ended June
30, 2022 and not in the prior year period, partially offset by a decline in GMS
for the Etsy.com marketplace. These drivers similarly impacted transaction fee
revenue, which increased by 13.0%. The share of Etsy.com GMS processed through
our Etsy Payments platform was 92% for both the six months ended June 30, 2022
and 2021.
Services revenue increased $26.7 million to $297.2 million in the six months
ended June 30, 2022 compared to the six months ended June 30, 2021 . The growth
in Services revenue was primarily driven by an increase of 12.9% in on-site
advertising revenue, which represented a significant majority of the overall
Services revenue increase. The increase in advertising revenue was due to an
increase in average price per click and higher click volume on Etsy Ads.
Cost of Revenue
Six Months Ended
June 30, Change
2022 2021 $ %
(in thousands, except percentages)
Cost of revenue $ 344,416 $ 291,886 $ 52,530 18.0 %
Percentage of total revenue 29.6 % 27.0 %
Cost of revenue increased $52.5 million to $344.4 million in the six months
ended June 30, 2022 compared to the six months ended June 30, 2021 . The increase
was primarily driven by cloud-related hosting and bandwidth costs and employee
compensation-related expenses, including stock-based compensation, mainly driven
by an increase in average headcount, including an increase in headcount from the
acquisitions of Depop and Elo7 included in the first half of 2022. Additionally,
cost of revenue expenses increased due to the amortization of developed
technology associated with the Depop and Elo7 acquisitions.
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Operating Expenses
Marketing
Six Months Ended
June 30, Change
2022 2021 $ %
(in thousands, except percentages)
Marketing $ 318,348 $ 318,678 $ (330) (0.1) %
Percentage of total revenue 27.3 % 29.5 %
Marketing expenses decreased $0.3 million to $318.3 million in the six months
ended June 30, 2022 compared to the six months ended June 30, 2021 , primarily
driven by a decrease in Etsy.com marketplace digital marketing costs which
dynamically adjusts with demand which has slowed due to unfavorable
macroeconomic headwinds. This decrease was offset in part by direct marketing
costs related to the acquisitions of Depop and Elo7 and in large part by
increases in employee compensation-related expenses, including stock-based
compensation, amortization of acquired intangible assets, and television ad
campaign costs in the United States . The increase in employee
compensation-related expenses was mainly driven by an increase in average
headcount, including an increase in headcount from the acquisitions of Depop and
Elo7 included in the first half of 2022. Paid GMS was 19% of overall GMS in the
six months ended June 30, 2022 , down from paid GMS of 20% in the six months
ended June 30, 2021 .
Product development
Six Months Ended
June 30, Change
2022 2021 $ %
(in thousands, except percentages)
Product development $ 191,571 $ 115,459 $ 76,112 65.9 %
Percentage of total revenue 16.5 % 10.7 %
Product development expenses increased $76.1 million to $191.6 million in the
six months ended June 30, 2022 compared to the six months ended June 30, 2021 ,
primarily due to increased employee compensation-related expenses, including
stock-based compensation, mainly driven by an increase in average headcount,
including an increase in headcount from the acquisitions of Depop and Elo7
included in the six months ended June 30, 2022 .
General and administrative
Six Months Ended
June 30, Change
2022 2021 $ %
(in thousands, except percentages)
General and administrative $ 153,190 $ 113,781 $ 39,409 34.6 %
Percentage of total revenue 13.2 % 10.5 %
General and administrative expenses increased $39.4 million to $153.2 million in
the six months ended June 30, 2022 compared to the six months ended June 30,
2021 , primarily due to increased employee compensation-related expenses,
including stock-based compensation, mainly driven by an increase in average
headcount, including an increase in headcount from the acquisitions of Depop and
Elo7 included in the six months ended June 30, 2022 . This increase was partially
offset by a decrease in acquisition-related expenses associated with the Depop
and Elo7 acquisitions which closed in July 2021 .
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Other Income, net
Six Months Ended
June 30, Change
2022 2021 $ %
(in thousands, except percentages)
Other income, net $ 2,273 $ 3,740 $ (1,467) (39.2) %
Percentage of total revenue 0.2 % 0.3 %
Other income, net was $2.3 million in the six months ended June 30, 2022 , which
decreased $1.5 million from other income, net of $3.7 million in the six months
ended June 30, 2021 . The decrease was primarily driven by interest expense,
which increased primarily due to the issuance of the 2021 Notes in the second
quarter of 2021, and the amendment of the Brooklyn headquarters lease in the
fourth quarter of 2021. This was partially offset by more favorable changes in
U.S. dollar, Euro, Pound Sterling, and Canadian dollar exchange rates in the
current year versus the prior year which impact our intercompany and other
non-functional currency cash balances.
Benefit (Provision) for Income Taxes
Six Months Ended
June 30, Change
2022 2021 $ %
(in thousands, except percentages)
Benefit (provision) for income taxes $ 83 $ (1,462) $ 1,545 (105.7) %
Percentage of total revenue - % (0.1) %
Our income tax benefit and provision for the six months ended
The primary drivers of our income tax benefit for the six months endedJune 30, 2022 were tax benefits from employee stock-based compensation of$13.8 million and a benefit related to research and development tax credits, partially offset by tax expense on income before income taxes. The primary driver of our income tax provision for the six months endedJune 30, 2021 was tax expense of$41.4 million on income before income taxes, partially offset by tax benefits from employee stock-based compensation of$33.2 million and a benefit related to research and development tax credits of$6.6 million .
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Non-GAAP Financial Measures
The following table reflects the reconciliation of net income to Adjusted EBITDA
and the calculation of Adjusted EBITDA margin for each of the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in thousands, except percentages)
Net income $ 73,123
2,557 1,079 5,847 1,785
Provision (benefit) for income taxes 39 (12,500) (83) 1,462
Depreciation and amortization (2) 25,027 12,985 49,781 26,065
Stock-based compensation expense (3) 64,357 27,440 113,628 47,791
Foreign exchange (gain) loss (3,158) 2,272 (8,120) (5,525)
Acquisition-related expenses (4) 759 9,944 1,617 9,944
Adjusted EBITDA $ 162,704 $ 139,474 $ 321,902 $ 323,542
Divided by:
Revenue $ 585,135
28 % 26 % 28 % 30 %
(1)Included in the increase in interest and other non-operating expense, net is
primarily interest expense related to the 2021 Notes and the
(2)Included in the increase in depreciation and amortization is amortization expense of acquired intangible and developed technology assets related to the acquisitions ofDepop and Elo7 which is reflected in the three and six months endedJune 30, 2022 . (3)The increase in stock-based compensation expense is primarily driven by headcount growth, including increases related to the acquisitions ofDepop and Elo7. See Part I, Item 1, "Note 11-Stock-Based Compensation" in the Notes to Condensed Consolidated Financial Statements for disclosure of stock-based compensation expense included in the Condensed Consolidated Statements of Operations by financial statement line item classification. (4)Acquisition-related expenses for the three and six months endedJune 30, 2022 andJune 30, 2021 related to our acquisitions ofDepop and Elo7. See Part I, Item 1, "Note 5-Business Combinations" for further information.
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Liquidity and Capital Resources
Cash and cash equivalents and short-term investments were$1.0 billion as ofJune 30, 2022 . Additionally, we have$46.9 million in long-term investments that we can liquidate at short notice and with minimal penalties if needed. We also have the ability to draw down on our$200.0 million senior secured revolving credit facility. In the six months endedJune 30, 2022 , we had positive operating cash flows of$185.3 million . We believe that this capital structure, as well as the nature and framework of our business, will allow us to meet all debt covenants, sustain our business operations, and be able to react to changing macroeconomic conditions.
The following table shows our cash and cash equivalents, short-term investments, long-term investments, and net working capital as of the date indicated:
As of June 30, 2022
(in thousands)
Cash and cash equivalents $ 758,874
Short-term investments 247,816
Long-term investments 46,944Total cash and cash equivalents, and short- and long-term investments
$ 1,053,634 Net working capital $ 870,320 As ofJune 30, 2022 , a majority of our cash and cash equivalents, which were primarily held in cash deposits and money market funds, were held inthe United States for future investments, working capital funding, and general corporate purposes. We fund our non-U.S. operations from our funds held inthe United States on an as-needed basis. We invest in short- and long-term instruments, including fixed-income funds andU.S. Government and agency securities aligned with our investment strategy. These investments are intended to allow us to preserve our principal, maintain the ability to meet our liquidity needs, deliver positive yields across a balanced portfolio, and continue to provide us with direct fiduciary control. In accordance with our investment policy, all investments have maturities no longer than 37 months, with the average maturity of these investments maintained at 12 months or less. Sources of Liquidity As ofJune 30, 2022 we had four outstanding series of convertible senior notes, and collectively the net carrying value is$2.3 billion . Based on the terms of the Notes, we have the option to pay or deliver cash, shares of our common stock, or a combination thereof, when a conversion notice is received. Based on the daily closing prices of our stock during the quarter endedJune 30, 2022 , holders of the remaining 2018 Notes are eligible to convert their Notes during the third quarter of 2022 and holders of the 2021 Notes, 2020 Notes, and remaining 2019 Notes are not eligible to convert their Notes during the third quarter of 2022.
We also have the ability to draw down on a
See Part I, Item 1, "Note 8-Debt" for more information on the Notes and the 2019 Credit Agreement.
We believe that our existing cash and cash equivalents and short- and long-term
investments, together with cash generated from operations, will be sufficient to
meet our anticipated operating cash needs for at least the next 12 months. While
this belief is based on our current expectations and assumptions in light of
current macroeconomic conditions, our future capital requirements and the
adequacy of available funds will depend on many factors, including those
described in Part II, Item 1A, "Risk Factors" in this Quarterly Report.
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Historical Cash Flows
Six Months Ended
June 30,
2022 2021
(in thousands)
Cash provided by (used in):
Operating activities $ 185,298 $ 270,162
Investing activities (26,472) (80,203)
Financing activities (166,645) 625,310
Net Cash Provided by Operating Activities
Our cash flows from operations are largely dependent on the amount of revenue generated on our platforms, as well as associated cost of revenue and other operating expenses. Our primary source of cash from operating activities is cash collections from our customers. Net cash provided by operating activities in each period presented has been influenced by changes in working capital. Net cash provided by operating activities was$185.3 million in the six months endedJune 30, 2022 , primarily driven by cash net income of$307.6 million as a result of revenue generated on our platforms, and changes in our operating assets and liabilities that used$122.3 million in cash, primarily driven by timing of payment of accrued expenses in the period. Net cash provided by operating activities was$270.2 million in the six months endedJune 30, 2021 , primarily driven by cash net income of$304.2 million as a result of revenue generated on our platforms, and changes in our operating assets and liabilities that used$34.1 million in cash, primarily driven by timing of payment of payables in the period.
Our primary investing activities consist of purchases and sales of short- and long-term marketable securities and capital expenditures, including investments in capitalized website development and internal-use software and purchases of property and equipment to support our overall business growth. Net cash used in investing activities was$26.5 million in the six months endedJune 30, 2022 . This was primarily attributable to$17.2 million in capital expenditures, including$11.6 million for website development and internal-use software as we continued to invest in projects adding new features and functionality to our platforms, and net purchases of marketable securities of$9.3 million . Net cash used in investing activities was$80.2 million in the six months endedJune 30, 2021 . This was primarily attributable to net purchases of marketable securities of$71.2 million . In addition, investing activities included$9.0 million in capital expenditures, including$7.1 million for website development and internal-use software.
Our primary financing activities include proceeds from the issuance of convertible notes, repurchases of common stock, payments related to capped call transactions, settlement of convertible senior notes, payment of tax obligations on vested equity awards, proceeds from exercise of stock options, payments of debt issuance costs, and payments on finance lease obligations. Net cash used in financing activities was$166.6 million in the six months endedJune 30, 2022 . This was primarily attributable to stock repurchases of$124.7 million and payment of tax obligations on vested equity awards of$39.8 million . Net cash provided by financing activities was$625.3 million in the six months endedJune 30, 2021 . This was primarily attributable to proceeds from issuance of the 2021 Notes of$1.0 billion and proceeds from the exercise of stock options of$8.0 million , partially offset by stock repurchases of$180.0 million , payments of$85.0 million for the 2021 Capped Call Transactions, payment of tax obligations on vested equity awards of$56.5 million , the conversion of$43.9 million of the Notes, and payment of debt issuance costs of$12.6 million . 41
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Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. The future effects of global macroeconomic uncertainty, including the ongoing COVID-19 pandemic and general market, political, and economic conditions, on our results of operations, cash flows, and financial position are uncertain; however we believe we have used reasonable estimates and assumptions in preparing the condensed consolidated financial statements. Our actual results could differ from these estimates.
Except as set forth below, there have been no significant changes to our critical accounting policies and estimates included in our Annual Report.
Valuation of
Goodwill recorded represents the excess of the aggregate fair value of the consideration transferred for a business combination over the fair value of the assets acquired, net of liabilities assumed. It is subject to an annual impairment test, and if we determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then we are required to perform a quantitative assessment for impairment. A quantitative assessment for impairment requires management to use significant judgment and estimates, including estimates of future revenue, net available cash flows, as well as a discount rate, and a terminal growth rate. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable. If actual results are materially lower than originally estimated, it could result in a material impact to our consolidated financial statements in future periods. Under the quantitative goodwill impairment test, if our reporting unit's carrying amount exceeds its fair value, we will record an impairment charge based on that difference. To determine reporting unit fair value, we used the income approach. Under the income approach, we projected our future cash flows and discounted those cash flows to reflect their relative risk. The cash flows used were consistent with those we use in our internal planning, and reflect actual business trends experienced as well as our long-term business strategy for the reporting unit. As ofJune 30, 2022 , our balance of goodwill included approximately$979.5 million and$152.4 million of goodwill from our acquisitions ofDepop and Elo7, onJuly 12, 2021 andJuly 2, 2021 , respectively. As previously disclosed in our Annual Report for the year endedDecember 31, 2021 , as of the annual impairment testing date in 2021, the quantitative analysis assumed that the purchase consideration for theDepop and Elo7 acquisitions approximated fair value of each of the respective reporting units given the proximity to the respective acquisition dates. Due to current macroeconomic conditions, including reopening, pressures on consumer discretionary spending, foreign exchange rate volatility, and ongoing geopolitical events, and related headwinds on business performances, we performed a quantitative goodwill impairment test for theDepop and Elo7 reporting units' goodwill, finite-lived intangible assets, and other long-lived assets as ofJune 30, 2022 . For this quantitative analysis, we updated our projected cash flows based on current information and market assumptions, updated the discount rate used based on current market participant assumptions, and increased the discount rate used by 80 and 60 basis points as compared to the discount rate in our purchase price allocations at the time of theDepop and Elo7 acquisitions, respectively. TheJune 30, 2022 quantitative analysis estimated that the fair values of theDepop and Elo7 reporting units exceeded their carrying values by approximately 7% and 12%, respectively, and therefore no goodwill impairment was recognized for the three months endedJune 30, 2022 . Given the inherent uncertainties resulting from global macroeconomic conditions, actual results may differ from management's current estimates and could have an adverse impact on one or more of the assumptions used in our quantitative model prepared for theDepop and Elo7 reporting units, which could result in potential impairment charges in subsequent periods, particularly since the quantitative assessment for theDepop and Elo7 reporting units estimated that their fair values exceeded their carrying values by approximately 7% and 12%, respectively. Additionally, an increase in the assumed discount rate by approximately 50 and 65 basis points forDepop and Elo7, respectively, or a decrease in the terminal growth rate by approximately 100 basis points forDepop and 150 basis points for Elo7, could require us to record an impairment charge to goodwill, finite-lived intangible assets, and/or other long-lived assets. Management intends to continue to assess triggering events that may necessitate additional qualitative or quantitative analyses in future periods. If we were to have an impairment it could have a material adverse effect on our consolidated statements of operations and balance sheets in the reporting period of the charge.
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