Etsy, Inc. (ETSY) Bundle
Understanding Etsy, Inc. (ETSY) Revenue Streams
Understanding Etsy, Inc.’s Revenue Streams
The company’s revenue is primarily derived from two main segments: Marketplace revenue and Services revenue. The following table illustrates the breakdown of revenue for the three and nine months ended September 30, 2024, compared to the same periods in 2023:
| Revenue Source | Three Months Ended September 30, 2024 (in thousands) | Three Months Ended September 30, 2023 (in thousands) | Year-over-Year Change (%) | Nine Months Ended September 30, 2024 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) | Year-over-Year Change (%) |
|---|---|---|---|---|---|---|
| Marketplace Revenue | $476,075 | $460,922 | 3.3% | $1,413,434 | $1,381,395 | 2.3% |
| Services Revenue | $186,335 | $175,380 | 6.2% | $542,736 | $524,660 | 3.4% |
| Total Revenue | $662,410 | $636,302 | 4.1% | $1,956,170 | $1,906,055 | 2.6% |
For the three months ended September 30, 2024, total revenue increased by $26.1 million, or 4.1%, compared to the same period in 2023. The growth was driven by an increase in both Marketplace and Services revenue, with Services revenue showing a stronger year-over-year growth rate of 6.2%.
Year-over-Year Revenue Growth Rate
Year-over-year revenue growth has shown a positive trend, albeit modest. The total revenue for the nine months ended September 30, 2024, was $1.956 billion, reflecting a 2.6% increase compared to $1.906 billion in the same period in 2023. This indicates a slight acceleration in revenue growth, particularly in the Services segment, which grew by 3.4% year-over-year.
Contribution of Different Business Segments to Overall Revenue
The contribution of Marketplace and Services revenue to overall revenue remained relatively stable. For the three months ended September 30, 2024, Marketplace revenue accounted for 71.9% of total revenue, while Services revenue contributed 28.1%. This trend is consistent with the nine-month results, where Marketplace revenue was 72.3% and Services revenue 27.7%.
Analysis of Significant Changes in Revenue Streams
During the analysis period, several factors influenced revenue streams:
- The increase in Marketplace revenue was attributed to a mix of volume and pricing strategies, including the launch of a seller set-up fee.
- Services revenue growth was primarily driven by a 5.4% increase in on-site advertising revenue and a 20.5% increase in shipping label revenue, largely due to the Depop marketplace.
- Gross merchandise sales (GMS) for the three months ended September 30, 2024, were $2.915 billion, a decrease of 4.1% compared to $3.040 billion in the same period of the previous year.
The company’s GMS for the nine months ended September 30, 2024, was $8.851 billion, down from $9.154 billion in the prior year, reflecting a decline of 3.3%.
Overall, revenue analysis indicates a stable growth trajectory with particular strength in Services, offsetting challenges in GMS performance. The company continues to adapt its revenue strategies in response to market conditions and consumer trends.
A Deep Dive into Etsy, Inc. (ETSY) Profitability
Profitability Metrics
Gross Profit: For the three months ended September 30, 2024, the gross profit was $476,770 thousand, up from $447,475 thousand in the same period of 2023, representing a growth of 6.5%. For the nine months ended September 30, 2024, the gross profit was $1,399,307 thousand, compared to $1,333,137 thousand for the same period in 2023, reflecting a growth of 5.0%.
Operating Profit: Operating expenses for the three months ended September 30, 2024, totaled $389,953 thousand, up from $358,919 thousand year-over-year, marking an increase of 8.6%. For the nine months ended September 30, 2024, operating expenses were $1,174,231 thousand, slightly increasing from $1,168,754 thousand in 2023.
Net Income: The net income for the three months ended September 30, 2024, was $57,366 thousand, which is a 34.7% decrease from $87,850 thousand in 2023. For the nine months, net income was $173,375 thousand, down by 22.7% from $224,302 thousand in the prior year.
Net Income Margin: The net income margin for the three months ended September 30, 2024, was 8.7%, down from 13.8% in 2023. For the nine months, the net income margin was 8.9%, down from 11.8%.
Trends in Profitability Over Time
The following table summarizes key profitability metrics over the past two years:
| Metric | Q3 2024 | Q3 2023 | Change (%) | YTD 2024 | YTD 2023 | Change (%) |
|---|---|---|---|---|---|---|
| Gross Profit | $476,770 | $447,475 | 6.5% | $1,399,307 | $1,333,137 | 5.0% |
| Operating Profit | $57,366 | $87,850 | (34.7%) | $173,375 | $224,302 | (22.7%) |
| Net Income Margin | 8.7% | 13.8% | (5.1%) | 8.9% | 11.8% | (2.9%) |
Comparison of Profitability Ratios with Industry Averages
As of 2024, the company’s net income margin of 8.7% compares unfavorably to the industry average of approximately 10.5%. The gross profit margin stands at 71.9%, which is higher than the industry average of 65%.
Analysis of Operational Efficiency
Cost Management: The cost of revenue for the three months ended September 30, 2024, was $185,640 thousand, down from $188,827 thousand in 2023, representing a decrease of 1.7% of total revenue. This indicates effective cost management as revenues increased.
Gross Margin Trends: The gross margin for the three months ended September 30, 2024, was 72.0%, compared to 70.3% in 2023. For the nine months, the gross margin was 71.5% compared to 69.9% in the previous year. This trend indicates improvement in operational efficiency.
Operating Cash Flow: The operating cash flow for the nine months ended September 30, 2024, was $437,510 thousand, compared to $410,408 thousand in the same period of 2023, reflecting a positive trend in cash generation.
Debt vs. Equity: How Etsy, Inc. (ETSY) Finances Its Growth
Debt vs. Equity: How Etsy, Inc. Finances Its Growth
Overview of the Company's Debt Levels
As of September 30, 2024, the company had a total outstanding debt of $2.3 billion, which includes three series of convertible senior notes:
- 2021 Notes: $1.0 billion
- 2020 Notes: $650 million
- 2019 Notes: $649.9 million
Additionally, the company has access to a $400 million senior secured revolving credit facility.
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio as of September 30, 2024, was calculated to be approximately 3.66, based on total liabilities of $2.44 billion and total stockholders’ equity of -$624.3 million. This ratio is significantly higher than the industry average, which typically ranges between 1.0 and 1.5 for e-commerce companies.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In 2024, the company has not issued new debt but maintains its existing convertible senior notes. The notes have favorable terms, with effective interest rates as low as 0.25% for the 2021 Notes. The credit rating of the company remains stable, reflecting its ability to manage its debt levels effectively despite a high debt-to-equity ratio.
How the Company Balances Between Debt Financing and Equity Funding
The company has historically utilized a mix of debt and equity financing to support its growth initiatives. As of September 30, 2024, cash and cash equivalents stood at $1.0 billion, providing a strong liquidity position to manage its debt obligations. The company executed a stock repurchase program, where it repurchased 7.3 million shares at an average price of $63.42 during the nine months ended September 30, 2024.
| Debt Instrument | Principal Amount | Maturity Date | Interest Rate |
|---|---|---|---|
| 2021 Notes | $1,000,000 | June 15, 2028 | 0.25% |
| 2020 Notes | $650,000 | September 1, 2027 | 0.125% |
| 2019 Notes | $649,900 | October 1, 2026 | 0.125% |
| Revolving Credit Facility | $400,000 | N/A | N/A |
Overall, the company continues to leverage its debt structure to finance growth while maintaining a significant amount of cash reserves to manage financial obligations effectively.
Assessing Etsy, Inc. (ETSY) Liquidity
Assessing Etsy, Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio is calculated as follows:
- Current Assets: $1.0 billion (cash and cash equivalents plus short-term investments)
- Current Liabilities: $232.3 million (assumed based on typical obligations)
- Current Ratio: 4.3
Quick Ratio: The quick ratio is derived similarly, excluding inventory:
- Quick Assets: $1.0 billion (cash and cash equivalents plus short-term investments)
- Quick Liabilities: $232.3 million
- Quick Ratio: 4.3
Analysis of Working Capital Trends
As of September 30, 2024, the net working capital is:
- Net Working Capital: $767.7 million
Cash Flow Statements Overview
The cash flow for the nine months ended September 30, 2024, is summarized below:
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Operating Activities | $437,510 | $410,408 |
| Investing Activities | ($36,759) | ($53,983) |
| Financing Activities | ($504,793) | ($540,834) |
Net cash provided by operating activities was $437.5 million in 2024, driven primarily by cash net income of $464.1 million.
Potential Liquidity Concerns or Strengths
Liquidity strengths include:
- Cash and cash equivalents of $1.0 billion as of September 30, 2024.
- Access to a $400.0 million senior secured revolving credit facility.
Liquidity concerns may arise from:
- Decreasing gross merchandise sales (GMS), which were $2.9 billion for the three months ended September 30, 2024, down from $3.0 billion in 2023.
Is Etsy, Inc. (ETSY) Overvalued or Undervalued?
Valuation Analysis
Is Etsy, Inc. Overvalued or Undervalued?
The valuation analysis for Etsy, Inc. (ETSY) involves examining several key financial ratios and metrics to assess whether the company is overvalued or undervalued in the current market.
Price-to-Earnings (P/E) Ratio
As of September 30, 2024, the diluted earnings per share (EPS) was $0.45. The stock price was approximately $63.42. This results in a P/E ratio of:
P/E Ratio = Stock Price / EPS = $63.42 / $0.45 ≈ 140.93
Price-to-Book (P/B) Ratio
The book value per share as of September 30, 2024, is calculated based on total stockholders' equity of $1,270,347 and shares outstanding of 112,848:
Book Value per Share = Total Equity / Shares Outstanding = $1,270,347 / 112,848 ≈ $11.27
Thus, the P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share = $63.42 / $11.27 ≈ 5.63
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) is calculated as follows:
- Market Capitalization = $63.42 x 112,848 ≈ $7.15 billion
- Add: Total Debt = $2.3 billion
- Less: Cash and Cash Equivalents = $1.0 billion
- Enterprise Value = Market Cap + Total Debt - Cash = $7.15 billion + $2.3 billion - $1.0 billion = $8.45 billion
Adjusted EBITDA for the trailing twelve months is $530.9 million.
EV/EBITDA Ratio = EV / Adjusted EBITDA = $8.45 billion / $530.9 million ≈ 15.92
Stock Price Trends
Over the last 12 months, the stock price has fluctuated significantly:
| Date | Stock Price |
|---|---|
| October 2023 | $71.15 |
| January 2024 | $58.29 |
| April 2024 | $65.00 |
| July 2024 | $60.78 |
| September 2024 | $63.42 |
Dividend Yield and Payout Ratios
Etsy, Inc. currently does not pay a dividend, resulting in a dividend yield of 0%. The company's focus remains on growth and reinvestment of earnings instead of returning cash to shareholders.
Analyst Consensus on Stock Valuation
As of October 2024, the consensus among analysts is:
- Buy: 5 analysts
- Hold: 8 analysts
- Sell: 2 analysts
This indicates a mixed sentiment, with a slight preference for holding the stock over aggressive buying or selling.
Summary of Valuation Metrics
| Metric | Value |
|---|---|
| P/E Ratio | 140.93 |
| P/B Ratio | 5.63 |
| EV/EBITDA Ratio | 15.92 |
| Dividend Yield | 0% |
| Analyst Consensus (Buy/Hold/Sell) | 5/8/2 |
Key Risks Facing Etsy, Inc. (ETSY)
Key Risks Facing Etsy, Inc. (ETSY)
The financial health of Etsy, Inc. is influenced by various internal and external risk factors that investors must consider. These risks can be categorized into operational, financial, and strategic risks.
Industry Competition
The e-commerce sector is highly competitive, with numerous platforms vying for market share. As of September 30, 2024, Etsy reported a decline of 4.1% in Gross Merchandise Sales (GMS) year-over-year, amounting to $2.9 billion for the three months ended September 30, compared to $3.0 billion in the same quarter of 2023. This decline reflects the intense competition from other e-commerce platforms that may impact Etsy's market position.
Regulatory Changes
Regulatory risks are also a significant concern. The enactment of the digital services tax legislation in Canada retroactive to January 1, 2022, resulted in a non-income tax expense of $6.1 million for the nine months ended September 30, 2024. Such regulatory changes can affect operational costs and profitability.
Market Conditions
Macroeconomic factors can adversely affect consumer discretionary spending. The company noted that its GMS per active buyer declined by 3.4% year-over-year to $123, indicating potential headwinds in consumer spending. Additionally, the company highlighted that factors such as inflation, interest rates, and geopolitical uncertainties continue to pose risks to its financial performance.
Operational Risks
Operationally, Etsy faces challenges related to its workforce and technology. The company has experienced a decline in active sellers by 3.2% year-over-year, totaling 8.5 million sellers. This decline may impact the variety of products available on the platform and overall sales performance. Furthermore, the company’s workforce reductions in response to market conditions have led to a 5.9% decrease in product development expenses, which could affect long-term growth and innovation.
Financial Risks
Etsy's financial health is also susceptible to fluctuations in cash flow and capital resources. As of September 30, 2024, the company reported cash and cash equivalents of $1.0 billion. However, the existence of $2.3 billion in outstanding convertible notes raises concerns about future debt obligations and interest expenses. The company reported a net income of $57.4 million for the third quarter of 2024, a 34.7% decrease from the prior year.
Mitigation Strategies
In response to these risks, Etsy has implemented several strategies. The company has increased its investment in digital marketing, with marketing expenses rising by 22.1% for the three months ended September 30, 2024, totaling $196.5 million. This investment aims to enhance customer acquisition and retention amidst competitive pressures.
| Risk Factor | Current Impact | Mitigation Strategy |
|---|---|---|
| Industry Competition | GMS declined by 4.1% to $2.9 billion | Increased digital marketing investment |
| Regulatory Changes | Non-income tax expense of $6.1 million | Compliance monitoring and adaptive strategies |
| Market Conditions | GMS per active buyer declined 3.4% to $123 | Diverse product offerings and pricing strategies |
| Operational Risks | Active sellers declined by 3.2% to 8.5 million | Enhancing seller support and engagement |
| Financial Risks | Cash and cash equivalents of $1.0 billion | Cash flow management and cost control measures |
These insights into the risk factors facing the company provide a clearer picture of the challenges and strategies that will shape its financial health moving forward.
Future Growth Prospects for Etsy, Inc. (ETSY)
Future Growth Prospects for Etsy, Inc.
Key Growth Drivers:
- Product Innovations: The company has expanded its Etsy Payments platform, which processed 99% of marketplace Gross Merchandise Sales (GMS) for the three months ended September 30, 2024, compared to 93% in the same period of 2023.
- Market Expansions: Approximately 46% of GMS in the three months ended September 30, 2024, came from transactions involving either a seller or a buyer located outside of the United States.
- Acquisitions: The sale of Elo7 in August 2023 has allowed Etsy to focus on its core markets and enhance its operational efficiency.
Future Revenue Growth Projections:
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Total Revenue | $662.4 million | $636.3 million | 4.1% |
| Marketplace Revenue | $476.1 million | $460.9 million | 3.3% |
| Services Revenue | $186.3 million | $175.4 million | 6.2% |
Earnings Estimates: For the nine months ended September 30, 2024, total revenue reached $1.96 billion, up from $1.91 billion in 2023, reflecting a growth of 2.6%.
Strategic Initiatives:
- Increased investments in digital marketing have led to a 22.1% rise in marketing expenses for Q3 2024 compared to Q3 2023.
- The launch of a seller set-up fee in 2024 is expected to enhance revenue generation through additional transaction fees.
Competitive Advantages:
- The company has a strong user base, with 8.5 million active sellers and 96.7 million active buyers as of September 30, 2024.
- Effective integration of on-site advertising has increased revenue by 5.4% for Q3 2024.
Future Growth Metrics:
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Net Income | $57.4 million | $87.9 million | (34.7%) |
| Adjusted EBITDA | $183.6 million | $182.2 million | 0.8% |
| Operating Cash Flow | $437.5 million | $410.4 million | 6.6% |
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Article updated on 8 Nov 2024
Resources:
- Etsy, Inc. (ETSY) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Etsy, Inc. (ETSY)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Etsy, Inc. (ETSY)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.