Etsy(US:ETSY)2025-04-30 12:16Part I - Financial Information This section details the company's unaudited condensed consolidated financial statements, accompanying notes, and management's discussion and analysis of financial performance and condition Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2025, highlighting a slight revenue increase to $651.2 million but a net loss of $52.1 million due to a $101.7 million goodwill impairment charge Consolidated Statement of Operations Highlights (Q1 2025 vs Q1 2024) | Metric | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | | :--- | :--- | :--- | | Revenue | $651.2 | $646.0 | | Gross Profit | $459.1 | $458.8 | | Asset Impairment Charge | $101.7 | $0 | | (Loss) Income from Operations | $(22.3) | $68.1 | | Net (Loss) Income | $(52.1) | $63.0 | | Diluted EPS | $(0.49) | $0.48 | Consolidated Balance Sheet Highlights (As of March 31, 2025 vs Dec 31, 2024) | Metric | As of March 31, 2025 (in millions) | As of December 31, 2024 (in millions) | | :--- | :--- | :--- | | Total Current Assets | $1,110.0 | $1,327.7 | | Goodwill | $36.2 | $137.1 | | Total Assets | $2,120.8 | $2,417.8 | | Total Liabilities | $3,031.1 | $3,176.6 | | Total Stockholders' Deficit | $(910.3) | $(758.9) | Consolidated Cash Flow Highlights (Q1 2025 vs Q1 2024) | Metric | Three Months Ended March 31, 2025 (in millions) | Three Months Ended March 31, 2024 (in millions) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $49.2 | $69.0 | | Net Cash used in Investing Activities | $(20.7) | $(25.1) | | Net Cash used in Financing Activities | $(204.8) | $(163.0) | | Net Decrease in Cash | $(162.0) | $(125.5) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies and specific financial items, including a $101.7 million goodwill impairment for Reverb and the formal agreement to sell Reverb for $105.0 million - On April 21, 2025, the company entered into an agreement to sell Reverb, its musical instrument marketplace, for a purchase price of $105.0 million in cash. The transaction is expected to close in the coming months95 - A non-cash goodwill impairment charge of $101.7 million was recorded in Q1 2025 to write off goodwill in full for the Reverb reporting unit. This was triggered by the determination that a sale of the business was more likely than not515396 Revenue Disaggregation | Revenue Type | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Marketplace revenue | $458.5 | $467.0 | | Services revenue | $192.7 | $179.0 | | Total Revenue | $651.2 | $646.0 | - In Q1 2025, the company repurchased 3.717 million shares of its common stock at an average price of $50.90 per share. As of March 31, 2025, $811.0 million remained available for repurchase under the October 2024 program8488 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and cash flows, including key trends and factors impacting performance Overview Etsy operates two-sided online marketplaces, with its primary focus on the Etsy marketplace for unique goods, alongside Depop for fashion resale, and has agreed to sell Reverb for $105.0 million - Etsy's strategy is focused on building a sustainable competitive advantage ('Right to Win'), growing the Etsy marketplace in core geographies, and leveraging its marketplace playbook at Etsy and Depop103 - The company entered into an agreement on April 21, 2025, to sell its musical instrument marketplace, Reverb, for $105.0 million in cash107 Key Operating and Financial Metrics Consolidated Gross Merchandise Sales (GMS) decreased by 6.5% year-over-year to $2.8 billion, primarily due to a decline in the Etsy marketplace GMS amid pressure on consumer discretionary spending, while total revenue grew 0.8% to $651.2 million Key Metrics (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | % Change | | :--- | :--- | :--- | :--- | | GMS | $2,793.3 | $2,986.5 | (6.5)% | | Revenue | $651.2 | $646.0 | 0.8% | | Revenue Take Rate | 23.3% | 21.6% | +170 bps | | Adjusted EBITDA | $171.1 | $167.9 | 1.9% | | Active Sellers | 8.1 | 9.1 | (11.3)% | | Active Buyers | 94.8 | 96.4 | (1.7)% | - The decrease in GMS was primarily driven by the Etsy marketplace, reflecting continued pressure on consumer discretionary spending, a competitive retail environment, and changes in product development strategy that prioritized foundational investments111 - Currency-neutral GMS declined by 5.7% in Q1 2025, indicating that foreign exchange rates had a negative impact of 0.8% on reported GMS117 Results of Operations Total revenue increased by 0.8% to $651.2 million, driven by Services revenue growth offsetting a Marketplace revenue decline, while operating expenses rose 23.2% primarily due to a $101.7 million goodwill impairment charge for Reverb - Marketplace revenue decreased 1.8% due to lower transaction fee revenue from a decline in Etsy marketplace GMS, partially offset by a new seller set-up fee and increased Depop payments revenue118 - Services revenue grew 7.7%, primarily driven by a 6.2% increase in on-site advertising revenue due to a higher average price per click on Etsy Ads119 - Marketing expenses decreased 1.5% as the company reduced brand marketing spend (e.g., no prime time big game TV ad) and increased investment in performance marketing. Paid GMS grew to 23% of overall GMS from 20% YoY121 - A $101.7 million asset impairment charge was recorded related to the goodwill of Reverb, significantly impacting operating income124 Liquidity and Capital Resources The company maintains a strong liquidity position with $867.7 million in cash, cash equivalents, and short-term investments, plus an undrawn $400.0 million revolving credit facility, despite increased cash used in financing activities due to higher stock repurchases - As of March 31, 2025, the company had $867.7 million in cash, cash equivalents, and short-term investments, and access to a $400.0 million senior secured revolving credit facility130 Historical Cash Flows | Activity | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Operating Activities | $49.2 | $69.0 | | Investing Activities | $(20.7) | $(25.1) | | Financing Activities | $(204.8) | $(163.0) | - The increase in cash used for financing activities was primarily due to an increase in stock repurchases during the quarter139 Item 3. Quantitative and Qualitative Disclosures About Market Risk Management states that there have been no material changes to the company's quantitative and qualitative disclosures about market risks during the first quarter of 2025 compared to those disclosed in the 2024 Annual Report on Form 10-K - There were no material changes to market risk disclosures during the three months ended March 31, 2025143 Item 4. Controls and Procedures The company's management, including the CEO and CFO, evaluated and concluded that the disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025144 - No material changes to internal controls over financial reporting were identified during the first quarter of 2025146 Part II - Other Information This section covers legal proceedings, risk factors, equity security sales, and other disclosures relevant to the company's operations and financial health Item 1. Legal Proceedings The company is involved in various claims and litigation in the ordinary course of business, with management believing the outcomes will not have a material adverse effect on its financial condition or operations - The company is regularly involved in various claims and litigation but does not currently expect the outcomes to have a material adverse effect on its business83148 Item 1A. Risk Factors This section details the significant risks that could materially affect the company's business, financial condition, and operating results, encompassing operational, strategic, regulatory, and other investment-related factors Operational Risks Operational risks include fluctuating quarterly results due to macroeconomic conditions, the critical need to attract and retain buyers and sellers, reliance on third-party technology, and vulnerability to cyber-attacks and data breaches - Quarterly operating results may fluctuate due to factors beyond control, such as economic downturns, inflation, and geopolitical events, which can cause significant stock price fluctuations149150 - The business depends on attracting and retaining active buyers and sellers; failure to do so could harm financial performance, especially as GMS is concentrated in the most active users160164 - The company is vulnerable to technology disruptions, cyber-attacks, and security breaches, which could lead to service interruptions, data loss, and reputational damage. The Etsy marketplace relies substantially on Google Cloud169180 Strategic Risks Strategic risks encompass intense competition from diverse retailers, challenges in marketing effectiveness due to evolving digital landscapes, and potential failures in executing business strategy, including the announced sale of Reverb and future goodwill impairments - The company faces intense competition from large e-commerce marketplaces, national retailers, and social commerce channels, many of which have greater resources and offer features like free and fast shipping217220222 - Marketing effectiveness is at risk from changes in search engine algorithms (e.g., Google), social media platform policies, and the rise of ad-blocking technologies229230232 - The proposed sale of Reverb is subject to closing conditions and may not be completed as planned, which could result in expended management resources, transaction costs, and negative publicity246247 - The company has incurred significant goodwill impairment charges for Reverb, Depop, and Elo7 in the past and may incur further charges, which would negatively impact operating results248249 Regulatory, Compliance, and Legal Risks This section details risks from a complex and evolving global regulatory landscape, including potential liability for illegal items, high litigation costs, compliance with privacy and data protection laws, and challenges from evolving tax regimes and increased tech platform regulation - The company faces risk of liability for counterfeit, infringing, or unlawful items listed by sellers, as legal safe harbors like the DMCA are limited and subject to change265266 - Compliance with complex and evolving global privacy and data protection regulations (e.g., GDPR, U.S. state laws) is costly and failure to comply could result in significant fines and reputational damage273276 - Evolving tax laws, such as those imposing indirect tax collection on marketplaces and digital services taxes, create complexity and could adversely affect the business and its sellers278279 - Increased regulation of technology companies, such as the E.U. Digital Services Act (DSA) and the U.K. Online Safety Act, may impose significant compliance costs and operational burdens on Etsy and its sellers285287 Other Risks This section covers other investment-related risks, including stock price volatility, potential dilution from future stock sales or convertible note conversions, discretionary stock repurchase programs, and anti-takeover provisions that could affect stock price - The price of the company's common stock has been and will likely continue to be volatile, which could subject the company to securities litigation296 - Future sales of common stock or conversion of the outstanding convertible notes could result in additional dilution to stockholders and cause the stock price to decline298299 - Anti-takeover provisions, such as a classified board and super-majority voting requirements, could delay or prevent a change in control and depress the stock price307309 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activity for the first quarter of 2025, including the repurchase of 3.717 million shares for approximately $189.2 million and the remaining availability under the October 2024 program Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased (in thousands) | Average Price Paid per Share ($) | | :--- | :--- | :--- | | January 1 - 31 | 1,140 | $53.57 | | February 1 - 28 | 1,090 | $53.81 | | March 1 - 31 | 1,487 | $46.71 | | Total | 3,717 | $50.90 | - The June 2023 stock repurchase program was completed in Q1 2025. A new program authorized in October 2024 has no expiration date315 Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None311 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable312 Item 5. Other Information The company reported no other information for this item - None314 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including management compensation plans, CEO and CFO certifications required under the Sarbanes-Oxley Act, and the Inline XBRL documents - Exhibits filed include amended executive severance and non-employee director compensation plans, forms of RSU agreements, and required CEO/CFO certifications316