Earnings

Etsy Delights Investors With Earnings Win, Disgruntles Sellers With Advertising Fees

It turned out to be a surprisingly strong quarter for online craft marketplace Etsy. Net income came in at $31.3 million, or 25 cents a share. That is down from a year ago, when Etsy reported net income of $41.3 million, or 32 cents a share, but well ahead of analyst estimates leading into the earnings release, which were looking for earnings of 16 cents a share. Revenue was also looking strong during the last quarter of the year, up 35 percent to $270 million from $200 million at the same point in 2019.

That result is, again, well ahead of analyst predictions of $264.9 million.

In other notable results, the firm noted that Q4 results were driven by a strong performance during the holiday season. Etsy.com saw general merchandise sales (GMS) for the 5-day period of Thanksgiving through Cyber Monday pick up by 30 percent — pushed by investments in marketing and TV campaigns, product improvements and free shipping initiatives designed to “attract and convert” consumers. The retailer further noted that Cyber Monday and Tuesday were the highest GMS days ever for Etsy, delivering approximately $20,000 per minute on the site during peak sales volume.

In other notable numbers, consolidated GMS reached $1.7 billion — a 33 percent year-on-year increase. For the full year, consolidated GMS came in at $5 billion, up 27 percent from the previous year, with revenue of $818 million. Etsy’s community expanded to 46.4 million active buyers shopping from 2.7 million active sellers around the world as of the last day of last year.

And while the stronger-than-expected results attracted a fair amount of attention from investors and Etsy’s stock price shot up 13 percent in after hours trading, the most eye-catching earnings announcement was the clear lightening rod for opining out of the earnings report.

That honor went two the new mandatory advertising fees coming soon to Etsy sellers.

The new program, according to reports, will see Etsy start automatically advertising its seller products — and taking at least a 12 percent cut every time that advertising refers a sale that actually happens. The ads will appear on “high-traffic sites” like Google, Facebook, and Pinterest, and if a shop is doing more than $10,000 in sales a year, being part of the program isn’t optional.

Sellers, thus far, are less than enthused. One seller in an Etsy forum called the new release a “BS money grab,” while another called it “absolutely unfair” and “the most ridiculous thing I have seen.”

“This is just greed!” one seller wrote. “While us who work hard suffer.”

All sellers will also be auto-opted into the program, though sellers selling less than $10K in products a year can manually opt out of it. Smaller stores also pay more if they remain in the program, paying 15 percent in fees at minimum. The fee will be taken out of the full order total, meaning it is also taking a cut from shipping costs. Etsy historically has taken a 5 percent fee from sellers for using its platform, which will continue to be charged in addition to the advertising fee.

Etsy pitches the service as a win for sellers because it is “no risk” since they aren’t paying for the advertising but will get the benefits of boosted traffic. It says sellers should expect 1 in 10 sales to come through this new advertising program.

“Advertising is essential to growing an online business, but doing it on your own can get expensive,” the company writes.

The new advertising program is supposed to kick off in April and will replace what currently exists as Etsy’s advertising program, which today is an optional opt-in for sellers.

As for what’s next, Etsy is forecasting a solid year, with forecasts of consolidated GMS growth of 25-28 percent, consolidated revenue growth of 27-30 percent, or of $1.04 billion - $1.06 billion.

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