Etsy on Monday reported that its second quarter gross merchandise sales grew 20.4% (19.3% currency-neutral) year over year and 60 basis points from the first quarter to $901.7 million — its fourth consecutive quarter of sequential acceleration in this metric on an as-reported basis, according to a company press release.
Revenue in the quarter grew 30.2% to $132.4 million from the year-ago period, driven by growth in both Marketplace and Services revenue. Net income in the quarter plummeted 71% to $3.4 million, due to foreign exchange fluctuation and a tax benefit recorded last year, the company said.
Gross profit rose 31.8% year over year to $87 million, and gross margin expanded by 80 basis points to 65.7%, up from 64.9% in the year-ago quarter, the company also said. The crafts marketplace pleased its investors with a guidance bump for the year, projecting that GMS would grow between 18% and 20% this year as revenue would grow between 33% and 35% and adjusted EBITDA margin would still grow, as previously expected, between 21% and 23%.
Etsy is turning itself around under CEO Josh Silverman, who on Monday credited the company's diversity for much of its recent success. Shares soared more than 5% in late trading after its earnings release Monday, after a 2.1% rise in regular trading, according to Marketplace.
But there are also more nitty-gritty reasons for some of the crafts marketplace's improvements. Etsy began applying a transaction fee to shipping, which Silverman called "a standard industry practice in e-commerce" that he said will incentivize sellers to charge rational shipping fees. Also in the quarter, the company continued to experiment with curation on its website, its social media channels and through email, and has boosted its marketing.
"We believe there's a great deal of opportunity to do better here and we are just beginning," Silverman said of the curation, according to a conference call transcript from Seeking Alpha. "For example, for the first time, we began to incorporate a buyers location as one of the attributes in the machine learning algorithm used to categorize and rank search results. By serving localized content higher up in the ranking, we better satisfy our buyers expectations of shipping speed and promote the look and feel of a local marketplace for buyers unfamiliar with Etsy."
Another "key initiative," which he said will promote trust and reliability, is a test of opportunities for buyers to create user profiles on Etsy "where they can express themselves and their taste," he also said. "We believe user profiles will help connect the community through social interaction, allow for more personalization and give our buyers more reasons to come back."
While Silverman acknowledged that many sellers have balked at the company's recent fee hikes, he said that didn't affect operations overall. "There have been pockets of discontent regarding the fee increase, but sellers on the whole seem to understand the rationale for the change," he said. "And so far there has been almost no perceptible change in seller behavior, such as churn rates or item pricing."