Etsy Excels Amid Accelerating GMS

Etsy Marketplace Beats Estimates Amid GMS Growth

Amid growth in active buyers and gross merchandise sales (GMS), Etsy beat analysts’ estimates for the third quarter. The art and crafts marketplace reported revenues of $150.4 million and earnings per share of 15 cents compared to analysts’ estimates of $149.9 million and 7 cents, respectively.

Active buyers on the site grew by 17 percent to reach 37 million worldwide, while active sellers grew by 8 percent to two million. At the same time, GMS growth accelerated to 20.8 percent from 19.3 percent in the second quarter. Etsy CEO Josh Silverman noted on the company’s earnings call with analysts that “this is the fourth consecutive quarter that GMS has grown faster than active buyers.”

In search and discovery, Silverman noted that almost all of the visits to the site coming from a search engine land on a specific item listing page rather than the marketplace’s home page or category landing page. “This creates a potential dead end if that particular item was not a precise fit for that buyer on that mission,” he said, adding that it also contributes to buyers having a narrow view of product selection.

As a result, the marketplace has begun to focus on landing page experiences to show more product diversity and minimize dead ends. For instance, the company began to add product recommendations and notifications on item landing pages. At the same time, Silverman said another important investment is shipping, as it is a top friction point on the site.

He noted that less than 20 percent of the site’s listings in the third quarter offered free shipping, and that research suggests buyers perceive roughly half of the items in the marketplace as having high shipping prices. That not only impacts conversion rates, but also damages brand perception, according to Silverman.

To fix this problem, he said the site’s first step is to educate sellers on the impact of high shipping prices and ask them to think about shipping as another component of cost of goods sold (COGS). The site is also revising the search process to prominently feature items with more competitive shipping rates and to send notifications to sellers whose shipping prices are seen as too high.

And, to further encourage sellers to offer more competitive shipping, the company also has tools to help them adjust shipping prices. Lastly, the company has offered a holiday sweepstakes to sellers who offer free shipping. The efforts are bearing fruit, Silverman said, resulting in lowered shipping prices and an increased use of free shipping promotions.

Personalization and Customization

Silverman also noted that buyer research has uncovered significant untapped potential for personalization and customization on the platform, as a large percentage of products on the marketplace can be created to meet a buyer’s unique needs. For instance, a table can be customized to fit a room shape or dimension, and jewelry can be inscribed with a meaningful message. While Silverman said the company has traditionally done little to highlight these offerings, it began to streamline purchase flow for personalization and customization in the third quarter. Even with a relatively small improvement, Silverman said, Etsy has seen a meaningful conversion rate win.

At the same time, Silverman noted that a change in pricing structure helped to grow revenue by 41 percent in the quarter, and allowed the company to make additional investments in marketing, shipping and customer support. He also said the company didn’t see a significant increase in seller churn and sellers aren’t passing price increases along to buyers. But Silverman said the company was able to substantially increase investment in the business.

Yet Silverman noted that seller uptake of the Etsy Plus subscription package has been underwhelming. The company rolled out subscription packages starting with Etsy Plus in July as a way to bundle and simplify offerings for sellers. The company will maintain the $10 price point for the foreseeable future, but plans to continue to test and learn how bundled offerings can drive value for various types of sellers heading into the future.