Etsy (ETSY 68.05, +9.04, +15.32%), operates an online/mobile marketplace where people
buy and sell unique handmade goods, is trading nicely higher today after
reporting strong Q4 results last night.
Non-GAAP EPS declined modestly yr/yr but at $0.32, it came in better than market expectations. Revenue rose 46.7% yr/yr to $200.0 mln, which also was better than expected. Active buyers grew 18.2% yr/yr while 12-month GMS (Gross Merchandise Sales) per active buyer accelerated for the fifth consecutive quarter. Active sellers grew 9.4%. Etsy also provided guidance for 2019 for the first time: sees FY19 revs of +23-25% to $779-797 mln and GMS +17-20% to $4.6-4.7 bln.
The Q4 holiday period is always a key quarter for Etsy as many use it to buy holiday gifts. Etsy delivered a strong holiday shopping period this Q4. In particular, GMS from Thanksgiving through Cyber Monday was up 30% yr/yr, driven primarily by product launches, marketing, and improved landing page experiences.
Etsy has been working to improve its website and app. Specifically, Etsy has improved the browsing experience by using discovery badges that guide buyers throughout the marketplace and through the Etsy Gift Finder, which enables buyers to find unique items based on personalized inputs. Etsy has also been improving its context-specific search ranking, signals and nudges, personalized recommendations and a host of other product launches.
In addition, Etsy has been working with sellers to create a sense of urgency for buyers, made promotions more prominent and helped them offer more competitive shipping prices. Improvements such as estimated delivery date help drive buyer confidence that their special items would arrive in time.
On the call, management also talked about how it elevated its marketing spend in Q4 to find out two things. First, Etsy wanted to test new channels such as TV and paid social, to find if Etsy could make them ROI positive. Second, Etsy wanted to see how elevated spend in Google Products would impact returns. In other words, how much can Etsy step on the gas in each channel before the tachometer reaches yellow or red. Overall, Etsy was pleased with the preliminary results of its testing, as brand awareness and visits showed signs of improvement. In Q1, Etsy is taking a step back to re-calibrate and reassess its marketing spend.
Growing its international business has been a key strategy as well. On that front, international GMS increased 32% yr/yr on a currency-neutral basis, driven by GMS between US buyers and international sellers and by its fastest growing international trade route, international domestic, which is GMS generated between a non-US buyer and a non-US seller both in the same country. Within the international domestic trade route, the United Kingdom, one of its six core markets, reached record GMS levels during the quarter. Overall, international GMS was 36% of overall GMS.
Turning to its 2019 outlook, Etsy says there is some uncertainty surrounding the macro environment, specifically global consumer spending. Etsy is forecasting sustained growth and expanding margins for 2019 with GMS growth in the range of 17% to 20%, revenue growth of 29% to 32% and adjusted EBITDA margins of 23% to 25%. In terms of the cadence of GMS growth for the year, Etsy had a soft start to Q1 as the company pulled back on some marketing investments and launched new product development initiatives for the year.
In sum, this was an impressive quarter for Etsy. It clearly benefited from higher marketing spending in the quarter. It'll be interesting to see how Q1 performs as they pull back on marketing spend this quarter. Overall, the company appears to be performing quite well.
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