Keep commerce human. Investor Presentation November 2019 - - PowerPoint PPT Presentation

Keep commerce human.

Investor Presentation November 2019

This presentation is a high-level summary of our Q3 2019 financial results. For more information please refer to our press release dated October 30, 2019 and filings with the SEC. This presentation contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements relating to our financial guidance and key drivers thereof, the timing and impact of our new and planned initiatives, including our free shipping program, anticipated launch of

• ur unified ad platform, and our planned acquisition of Reverb, the anticipated impact of our product launches on

conversion rates and our future financial results, and the timing of our full migration to Google Cloud. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “may,” “plans,” “will,” “intends,” or similar expressions and the negatives of those words. Forward-looking statements involve substantial risks and uncertainties that may cause actual results to difger materially from those that we expect. These risks and uncertainties include: (1) the fluctuation of our quarterly

• perating results; (2) our ability to implement our business strategy; (3) our ability to attract and retain an active

and engaged community of Etsy sellers and Etsy buyers; (4) our history of operating losses;(5) macroeconomic events that are outside of our control; (6) our ability to recruit and retain employees; (7) the importance to our success of the trustworthiness of our marketplace and the connections within our community; (8) our ability to enhance our current ofgerings and develop new ofgerings to respond to the changing needs of Etsy sellers and Etsy buyers; (9) the efgectiveness of our marketing efgorts; (10) the efgectiveness of our mobile solutions for Etsy sellers and Etsy buyers; (11) our ability to expand our business in our core geographic markets; (12) regulation in the area of privacy and protection of user data; (13) our dependence on third-party payment providers; (14) acquisitions which may prove unsuccessful or divert management attention, including our potential acquisition of Reverb; and (15) the potential misuse or disclosure of sensitive information about members of our community and the potential for cyber-attacks. These risks and uncertainties are more fully described in our filings with the Securities and Exchange Commission, including in the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, and subsequent reports that we file with the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact

• f all factors on our business or the extent to which any factor, or combination of factors, may cause actual results

to difger materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements

• r events and circumstances reflected in the forward-looking statements will occur. Forward-looking statements

represent our beliefs and assumptions only as of the date of this presentation. We disclaim any obligation to update forward-looking statements.

Forward-looking Statements

Etsy’s Value Proposition

One of a kind platform ofgering unique handcrafted goods from creative entrepreneurs around the world Significant early stage opportunity to

• wn “special” and capture a greater

share of a $250B+ TAM Successfully executing a long-term growth strategy focused on our Right to Win Leveraging our strong brand awareness with marketing initiatives to drive frequency and growth

4

Delivering strong top and bottom line

• perating and financial performance

5 1 2 3

1

One of a kind platform ofgering unique handcrafted goods from creative entrepreneurs around the world

*Active sellers and active buyers include Reverb’s active sellers and active buyers of 155 thousand and 594 thousand, respectively, as of September 30, 2019.

Sellers Buyers

2.6 Million* Active Sellers 45 Million* Active Buyers

Our marketplace has two-sided vibrancy...

+63 million items

Categories

Unique goods listed across dozens of retail categories

Product Range

Large assortment of unique, original and vintage products from all over the world

Personalization

Made to customer specification

Etsy connects those who love unique, handcrafted and difgerentiated goods

Buyer Intent

People come to Etsy to browse and be inspired

*2018 survey of Etsy buyers

In a survey of Etsy buyers, 78% agreed that Etsy has items you can’t find anywhere else

≠ special

self-expression fun human personal In a sea of sameness, we ofger something unique...

everyday commodities

2

Significant early stage opportunity to own “special” and capture a greater share of a $250B+ TAM

~$100B

Market for “Special”

$1.7T

6 core geographies Across all relevant retail categories

→

$3.9B

2018 Global GMS Etsy Estimated Market Share: ~4%

Top Geographies: United States United Kingdom Canada Australia Germany France

Expanded to include online spend in ALL relevant retail categories and core geographies

Sources: Euromonitor (2018), Assoc. for Creative Ind. (Jan 2018), Art Basel (2018), Hiscox (2018), IBIS, Etsy Consumer Survey

2018 TOTAL RETAIL AND ONLINE TAM 2018

$249B

Significant opportunity to grow market share in a very large TAM

Based upon shopping styles...we know there’s a large population who would love Etsy - 40% of consumers fit our profile

Expressives

28.8%

Target consumers for “special”

Data from a June 2018 Etsy study of US consumers

Seekers 14.8%

~40%

Expressives US Consumers Seekers

We use this information to help size the marketplace for “Special”

3

Successfully executing a long-term growth strategy focused on our Right-to-Win

United States Canada United Kingdom Australia France Germany

1.

Focus on the core Etsy marketplace in our 6 core geographies

2.

Build a sustainable competitive advantage around four key elements

Best-in-Class Search and Discovery Human Connections A Trusted Brand Our Collection of Unique Items

× ×

Disciplined and focused long-term growth strategy

New product development aligned with our Right to Win

Best-in-Class Search and Discovery

Ex: New non-linear models

A Trusted Brand

Ex: Improved shipping experience

Human Connections

Ex: Improved messaging between buyers & sellers

Our Collection of Unique Items

Ex: Improved variation photos

✕ ✕

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We are driving to best-in class search

Context Specific Ranking (CSR)

• Machine learning algorithm that

re-ranks in real time

• Uses buyer’s context to serve up

relevant search items

• Index based on data provided by

sellers (titles, tags, categories)

Advanced CSR

Multiple search experiments with more data to inform algorithms

• Increasing model

complexity

• Optimizing for

contextual cues

• Advanced re-rank over more and

more listings

• Improved signals into machine

learning models

• Expansion of context models to

app search ranking

• Ability to optimize across multiple
• bjectives, given business

priorities

• Advanced model engines &

continuous feature expansion

• Filter out distracting content

(wrong stuff at the wrong time)

• Etsy Marketplace + Apps
• Machine Learning
• Big Data & Search
• Support Services

2018 2019 2020+ 2017

Fueled by Google Cloud Platform

2019 built the foundation for the next evolution of our Search journey

emerald ring Emerald Type: Material Emerald Type: City Emerald Type: Color Shower curtain ring Type: Category Jewelry ring Type: Category Compute Utilization

Non-linear models Context-specific search ranking Linear models 17

Large product initiative focused on improving Etsy’s shipping experience … starting with price

74%

Listing views of items eligible to ship for free

*as of 9/30

62%

1same shop purchases >$35

Listings eligible to ship for free to US

*as of 9/30

% of listings with free shipping

3Q18 4Q18 1Q19 2Q19 3Q19 0% 20% 40% 60% 80%

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4

Leveraging our strong brand awareness with marketing investments to drive buyer frequency and growth

Our buyers love Etsy, but many only shop once a year...

44 Million*

60%

1x/year1

70+

NPS score among recent purchasers2

*Active buyers for Etsy marketplace exclude Reverb and were approximately 44.2 million, as of September 30, 2019.

And while millions love us, they don’t know when to think of us...

Prompted Awareness Unprompted Awareness Visit Intent (Consideration) Purchase Intent Loyalty Advocacy

79% 39% 22% 16% 18% 18%

Etsy Brand Funnel: U.S., Q4 2018

We are moving our marketing investments to “full funnel” strategies; focused on delivering positive ROI

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FULL-FUNNEL MARKETING More effjcient performance marketing - more sophisticated bidding, feed improvements Progress unlocking positive ROI social channels - i.e. through re-targeting Positive impact from TV; making other channels work harder

Content Affiliates

Our goal is to make Etsy relevant for more of our buyers’ “special” purchase occasions

JANUARY | FEBRUARY | MARCH | APRIL | MAY | JUNE | JULY | AUGUST | SEPTEMBER | OCTOBER | NOVEMBER | DECEMBER

Holiday Mother’s Day Valentine’s Day Halloween Special Dress New Home Baby Wedding Back to school 4th of July Easter Thanksgiving Labor Day

GMS per Active Buyer

$99.8 $99.8 $99.7 Year-over-year growth

Improvement in key operating metrics signal effjcacy of marketing spend and progress improving frequency

$100.3

• 0.3%

0.2% 1.0% 1.9% 2.0% 2.2% 2.0% 1.3%

Active Buyers

44.2M

+19% Y/Y

Habitual Buyers

2.4M

+24% Y/Y

$101.5 1.8%

3.7%

Results exclude consolidated financials and operating metrics related to the acquisition of Reverb

2-year growth rate 24

We are seeing continued improvement to

• ur buyer cohort

retention

Results exclude consolidated financials and operating metrics related to the acquisition of Reverb

25

Quarters since first purchase Buyer Cohort GMS Retention Rate

We are streamlining our ad products to unlock seller budgets and deliver additional growth

New: Etsy Ads

A single growth platform that automatically maximizes visits across multiple channels

Promoted Listings

Search ads on Etsy funded by sellers

Google Shopping

Search ads on Google funded by sellers Prior Ad Products

1 2

Etsy Ads involves a three phased approach to ensure sellers’ success

3Q19 4Q19 2020 2021+

Migrated Promoted Listing and Google Shopping sellers to the platform Provided redesigned shop analytics tools to help sellers measure success Demonstrate the value of Etsy Ads through increased visits and return Improve aggregate return; enabling sellers to increase investments Provide a path for growth for other sellers

Maintain seller budgets, minimize churn and begin budget expansion Optimize seller spend and budget utilization; expand seller budgets Begin to acquire new sellers

1 2 3

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5

Delivering strong top and bottom line

• perational and financial performance

Strong execution has led to solid financial results

20.6% 17.6% 19.3% 20.8% 23.1% 22.8%

GMS Revenue & Adj. EBITDA²

$169 $121 $132 $150 $200 $181 29.4% 21.9% 20.9% 22.6% 25.7% 21.9% $1,024 $861 $902 $923 $1,246 $1,095 $49.9 $26.4 $27.7 $34.0 $51.4 $39.7

¹ EPS reflects diluted earnings per share ² Reconciliation of non-GAAP financial measures is contained in the Appendix. Adjusted EBITDA Margin defined as Adjusted EBITDA as a percentage of total revenue.

GMS

$3.3B

+23.6% Y/Y Revenue

$548M

+36% Y/Y Net Income

$65M

$0.51EPS1

• Adj. EBITDA2

$132M

24% Margin

9M 2019 Metrics

$42.1 $198 21.9%

Reverb $6.0

Reverb $76.9 $1,200 31.1% Q118 Q218 Q318 Q418 Q119 Q219 Q319 Q118 Q218 Q318 Q418 Q119 Q219 Q319 As-reported GMS Revenue ($M) Adjusted EBITDA Currency Neutral GMS Growth

Adjusted EBITDA Margin²

Services Revenue

(Optional value-added services) Advertising Shipping Label /Protection Other

Marketplace Revenue

Listing Fee Transaction Fee Payments Platform

$141M, up 27% YoY $56M, up 48% YoY

Includes Reverb results for Aug 15-Sept 30, 2019 Etsy transaction fee 5% and Reverb transaction fee 3.5% both including shipping fees Etsy Payments (3-4.5% +flat fee) plus Reverb Payments (2.5%-2.7% +flat fee)

Q3 2019 CONSOLIDATED REVENUE $198M, UP 32% YOY

We have a diversified revenue model consisting of marketplace fees and optional value-added services

We are delivering strong operating cash flow

Nine Months Ended

• Sept. 30, 2019

$128.3

($ millions)

Nine Months Ended

• Sept. 30, 2018

$96.9

Organic Growth Opportunistic M&A Return of Capital

Product and engineering resources Marketing Back offjce effjciencies to scale Geographies (e.g. DaWanda*) Adjacent marketplaces (e.g. Reverb) Technology (e.g. Blackbird) Vertical extensions $175.3m worth of shares repurchased from Q4 2017 through Q3 2019 ¹ Cumulative average repurchase price of $31.20

We use our cash to invest for growth and value creation

*DaWanda Referral Agreement June 2018 ¹ Pursuant to board approved plan; excludes concurrent purchase with debt offering.

Founded in 2013 and based in Chicago with core markets in US, UK, Germany, France & Australia Mission & business model aligned with Etsy Focused on inspiring content, price transparency and musician focused e-commerce tools to create a significant competitive advantage Marketplace will be operated separately from Etsy.com Currently focused on integration and sharing best practices across our two marketplaces, particularly in product development & marketing

Recently acquired Reverb: the Etsy of musical instruments

Reverb’s operational and financial metrics reflect an upside

• pportunity

Revenue*

$6M

Active Buyers

~600K

Active Sellers

~155K

GMS*

$77M

*Approximate figures August 15 - September 30, 2019

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2019 Guidance for GMS, Revenue and Adjusted EBITDA

*Based on the mid-point of 2019 revenue guidance. Reconciliation of non-GAAP financial measures is contained in the Appendix. Key factors impacting our guidance are contained in the Appendix.

Revised Guidance1 Oct 30, 2019

GMS ($) GMS Growth (%) Revenue ($) Revenue Growth (%)

• Adj. EBITDA* ($)
• Adj. EBITDA Margin*(%)

25 - 26% $4.9B-$5B Original Guidance Feb 25, 2019 Prior Guidance Aug 1, 2019 17-20% $4.6B-$4.7B 29 - 32% $779M-$797M 23 - 25% $181M-197M 20 - 22% $4.7B-$4.8B 32 - 34% $797M-809M 22 - 24% $177M-$193M 34 - 35% $809M-815M 22 - 23% $179M-187M

1Revised guidance is inclusive of Reverb from August 15th through the end of 2019. We expect Reverb to

contribute approximately 5-6% to GMS growth, 2-3% to revenue growth and and will contract adjusted EBITDA margins as we align Reverb with Etsy’s benefit programs and capitalization guidelines for internal

• development. Reverb’s take-rate for 3Q was 7.8% vs. Etsy standalone of 17.1% bringing aggregate Company

take-rate to 16.4%.

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Josh Silverman

Chief Executive Offjcer

Rachel Glaser

Chief Financial Offjcer

Mike Fisher

Chief Technology Offjcer

• Member of Etsy’s Board of Directors
• Two decades of leadership experience include growing consumer

• Previously served as President of Consumer Products and Services

• Brings more than 30 years of senior financial experience to Etsy
• Previously at Leaf Group, where she served as CFO since 2015
• As the CFO at Move, Inc. she helped lead a successful sale of

• Manages our services platform globally overseeing development of

• Held many integral roles at Etsy over the past six years from

Kruti Patel Goyal

Chief Product Offjcer

Jill Simeone

General Counsel and Secretary

• Brings more than 15 years of experience in international

• Before joining Etsy, Jill served as Vice President, Senior

• Manages our technology strategy helping to further scale our

• Prior to joining Etsy, Mike was the co-founder and managing

• Mike’s career in technology has also included the roles of Chief

Raina Moskowitz

Senior Vice President of People, Strategy, and Member Services

• Raina Moskowitz is Etsy’s Senior Vice President of People,

• She comes to Etsy after nearly 13 years at American Express,

• perations and marketing.

Our Leadership Team

Ryan Scott

Chief Marketing Offjcer

• Two decades of marketing and e-commerce experience.
• Leads Etsy’s digital marketing, advertising, communications,

• Prior to joining Etsy, Ryan was Chief Consumer and Marketing

Economic Impact Making creative entrepreneurship a path to economic security and personal empowerment Social Impact Enabling equitable access to the many opportunities we create Ecological Impact Building long-term resilience by eliminating our carbon impacts and fostering responsible resource use

We are fully committed to making progress on our impact goals

Appendix

Revenue $548,381 $403,665 Cost of revenue 180,212 133,651 Gross profit 368,169 270,014 Marketing 131,536 94,651 Product development 86,177 68,707 General and administrative 86,733 61,359 Operating expenses 304,446 224,717 Income from operations 63,723 45,297 Other expense, net (5,828) (13,095) Benefit for income taxes 6,708 4,038 Net income $64,603 $36,240 Net income per share — diluted 0.51 $0.29

Condensed Consolidated Statement of Operations

Revenue

Cost of revenue Gross profit Marketing Product development General and administrative Operating expenses Income from operations Other expense, net Benefit (provision) for income taxes

2019 2018

(In thousands)

39

Nine Months Ended September 30,

Condensed Consolidated Statement of Cash Flows

2019 2018 (in thousands) Net Income $64,603 $36,240 Net cash provided by operating activities 128,339 96,876 Net cash used in investing activities (208,255) (244,178) Net cash provided by financing activities 388,188 201,002 Efgect of exchange rate changes on cash (3,488) (6,415) Net increase in cash, cash equivalents, and restricted cash 304,784 47,285 Cash, cash equivalents, and restricted cash at the beginning of the period 372,326 320,783 Cash, cash equivalents, and restricted cash at the end of the period $677,110 $368,068

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Merilee Buckley Comment Cancel

Nine Months Ended September 30,

Condensed Consolidated Balance Sheets

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As of September 30, 2019 As of December 30, 2018 (in thousands) Cash and cash equivalents $671,769 $366,985 Short-term investments 180,170 257,302 Accounts receivable, net 12,494 12,244 Property and equipment, net 153,262 120,179 Goodwill 138,474 37,482 Intangible Assets 202,102 34,589 Other current and non-current assets 140,927 73,070 Total assets $1,499,198 $901,851 Accounts payable $23,416 $26,545 Finance lease obligations, net of current portion 55,576 2,095 Facility financing obligation

• 59,991

Long-term debt, net 776,127 276,486 Other current and non-current liabilities 254,817 135,836 Total liabilities 1,109,936 500,953 Total stockholders’ equity 389,262 400,898 Total liabilities and stockholders’ equity $1,499,198 $901,851

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 (in thousands) Net income $12,967 $3,379 $19,894 $41,251 $31,579 $18,223 $14,801 Excluding: Interest and other non-operating expense, net 2,667 3,687 3,768 3,099 1,268 1,287 2,194 Provision (benefit) for income taxes 14 1,246 (5,298) (18,375) (142) (1,854) (4,712) Depreciation and amortization 6,320 6,357 6,439 7,626 10,142 9,810 12,808 Stock-based compensation expense 6,454 8,617 8,916 14,244 8,082 10,837 12,137 Acquisition-related expenses — — — — — 1,206 1,735 Foreign exchange (gain) loss (1,850) 4,450 373 3,514 (1,062) 192 1,949 Non-ordinary course disputes — — — — — — 1,164 Restructuring and other exit costs (income) (151) (41) (57) — — — — Adjusted EBITDA $26,421 $27,695 $34,035 $51,359 $49,867 $39,701 $42,076

Reconciliation of Quarterly Net (Loss) Income to Adjusted EBITDA

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We anticipate that the key factors impacting Etsy consolidated 2019 GMS and revenue guidance as well as Etsy standalone targets will be:

• Continued visit growth.
• Conversion rate improvements driven by product launches enhancing the buying experience.
• Incremental GMS from marketing investments.
• Increase in GMS from our free shipping initiative.
• Increase in revenue from recording Google Shopping seller budgets as revenue following the launch of Etsy Ads. There is a corresponding dollar-for-dollar offset in cost
• f revenue for seller budget directed to Google Shopping. The impact from Etsy Ads will not have an impact on adjusted EBITDA but have a dampening impact on

adjusted EBITDA margin.

• Continued currency-neutral growth in international GMS, which we expect to grow faster than overall GMS, driven by global product enhancements and marketing.
• We assume a stable macro environment. However, we have seen a larger than previously expected impact from state sales taxes, and other external factors may offset

some growth, such as E.U. regulatory conditions, currency fluctuations, changes to VAT, and the potential for geopolitical events that impact trade.*

• GMS and Revenue performance related to our recent acquisition of Reverb.

We anticipate that the key factors impacting our 2019 Adjusted EBITDA margin guidance will be:

• Planned investments in marketing including investments in newer channels for Etsy with more speculative returns.
• Lower operating expense as a percent of revenue stemming from gaining leverage in our operating structure. We expect to gain leverage in product development and

general administrative expenses, which excludes the impact of depreciation from the implementation of new lease accounting standards.

• Lower capitalization of costs related to product development for Etsy and the recent acquisition of Reverb.
• We expect cloud costs to be higher than $25 million, most of which will be expensed through cost of revenue.

○ Additionally, during the migration, we are maintaining some of our existing data center infrastructure to ensure reliability of our platform. ○ As we migrate to the cloud, we anticipate spending a smaller portion on existing data center infrastructure and more on cloud capacity.

• Adjusted EBITDA associated with the recent acquisition of Reverb, which we expect to be a drag on the consolidated EBITDA margin for 2019.

Q3 2019 Financial Results

Key factors impacting our 2019 Guidance

*These, and other risks and uncertainties, are more fully described in in our Annual Report on Form 10-K for the year ended December 31, 2018, and subsequent reports that we

file with the Securities and Exchange Commission.

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