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Etsy Gives Optimistic Annual Sales Forecast on Free Shipping

Nikitha Sattiraju

(Bloomberg) -- Etsy Inc. reported fourth-quarter gross merchandise sales that beat analyst estimates and gave an optimistic forecast for 2020, signaling the company’s free-shipping initiative has begun to pay off. Shares jumped more than 10% on the news.

Gross merchandise sales, or GMS, a key metric for the e-commerce industry, increased 33% to $1.66 billion in the period ended Dec. 31, the Brooklyn, New York-based company said Wednesday in a statement. Revenue jumped 35% to $270 million. Analysts, on average, estimated $1.6 billion in GMS and $264.8 million in revenue, according to data compiled by Bloomberg.

For 2020, Etsy projected GMS, or the value of the products flowing through the website, of as much as $6.4 billion, compared with analysts’ projection of $6.04 billion. The company also said revenue would be $1.04 billion to $1.06 billion, which topped Wall Street’s projection of $1.02 billion.

“Etsy.com and our sellers had a great holiday season,” Chief Executive Officer Josh Silverman said on a conference call. He said the company’s marketing efforts, including its holiday television campaign, helped drive those sales. Cyber Monday and Tuesday -- the days after the U.S. Thanksgiving holiday weekend --- saw the highest daily levels of gross merchandise sales ever for the company, he said.

Net income declined to $31.3 million, or 25 cents a share, from $41.3 million, or 32 cents, in the period a year earlier.

Prior to Wednesday’s results, there were doubts over Etsy’s free-shipping initiative for its U.S- based customers, which wasn’t progressing as planned. The company requires all sellers on its platform to offer free shipping for orders of more than $35 to be prioritized in search results. But sellers didn’t pass on 100% of the savings from free-shipping to buyers.

Chief Financial Officer Rachel Glaser acknowledged the initiative’s shaky progress. Helping sellers better plan their pricing strategies to not absorb free shipping costs and expanding buyer knowledge about the program will take time, Glaser said on the call.

The company also introduced a new advertising service in 2019, where Etsy uses sellers’ ad budgets to promote their brands on Etsy’s website and on Google Ads. It announced an update to the service Wednesday by introducing Offsite Ads, in which Etsy will use its budget to promote sellers’ brands on multiple platforms including Google, Facebook and Instagram. If sellers make a sale through such an ad, they pay a fee of 12-15% of the order value. The fee is capped at $100 per order.

Etsy shares jumped to a high of $57.50 in extended trading after the results were released. The stock closed at $50.69 in New York and has declined 26% in the past 12 months.

(Updates with CEO comments in the fourth paragraph.)

To contact the reporter on this story: Nikitha Sattiraju in New York at nsattiraju@bloomberg.net

To contact the editors responsible for this story: Molly Schuetz at mschuetz9@bloomberg.net, Andrew Pollack, Anne VanderMey

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