In this episode we talk about some recent news out of Etsy as they release their Q1 earnings report and announce that Chad will be stepping down as CEO. Stick around to hear some highlights from their Q1 statements and our feelings about the future of Etsy!
Straight outta Etsy
Big news: The beginning of May Etsy announced their first quarter 2017 financial results! Along with this, they also announced other exciting changes coming to an Etsy near you! We wanted to cut through some of the Q1 things Etsy released and give you an overview of what some of the numbers buried in that report actually mean. The truth. Because, there are a lot of things going on and you might be wondering, “What the heck?!”
All about the timing
Let’s all take a deep breath, calm our nerves and remember, this was all planned. Even though it might feel like there are SO many changes SO fast, all of these changes have been in the works for a while. Etsy wasn’t caught off guard because those behind Etsy have been planning this. For months. They have been strategizing what to say and do in these press releases. So no, we don’t think that any of this news is a shock to anyone on the inside of Etsy. It is very normal for big companies to announce within the first quarter any changes and if senior level leadership positions are transitioning. It’s all part of setting expectations for the year. This also plays into the fact that Etsy is now a “public” company.
Exiting stage left
So, the white elephant in the room: Longtime C.E.O. Chad Dickerson is stepping down, to be replaced by former Skype C.E.O and Etsy board director Josh Silverman. Josh also has experience with E-bay and was the cofounder of E-vite. So, if Etsy has a five or ten year plan, which we’re sure they do, it’s very possible that what is required of the Etsy C.E.O. for the next several years is not what Chad felt like doing. Again, we don’t think this was anything surprising. Once a company has gone public it takes a different skill set to guide it down that path. Having someone step into the role of C.E.O who has gone through that change before is definitely a smart move. And really, it’s simply a different character role. Chad’s role while he was at Etsy was amazing! He grew the revenue of sellers by nine percent, grew Etsy’s revenue almost fourteen percent, and their operating profit almost fifteen percent. These are all fantastic numbers over a six year span. Chad played a huge role in getting Etsy to the place where it could go public. We wish him the best in whatever role he picks up next!
Etsy isn’t the other people
One thing Josh has acknowledged coming into Etsy is that it most definitely has a differentiated value proposition from other markets out there. This is great, because we want to see them stay different from everyone else. We can see how the change in leadership (along with all the other changes) would cause concern that Etsy might be completely changing who they are. Are their values out the window?! Are they still going to be focused on the community? Will they satisfy their sellers?? As well as satisfying their seller’s customers? It’s all kinda an unknown. Josh Silverman has stated these things will not change and will still be the values of Etsy. It would be a pretty bad way to start off as C.E.O. if he stated a bunch of stuff that he didn’t really mean. That would be more of a politician thing to do;)
There’s a net loss
The first quarter 2016 saw a net profit for Etsy. The first quarter of 2017 showed a definite net loss. A lot of stuff is rolled into these quarterly reports, however. There isn’t a ton of detail when you look at them. Making a general statement like, “Oh, they lost money so something must be wrong” doesn’t necessarily mean that is what’s happening. If you invest in things, it costs money. Buying infrastructure costs money. Hiring people costs money. If you buy other companies (which they did) it costs money. Those things temporarily bring down your income which could bring it down to a loss. This is a huge reason why companies go public, to sell out portions of the company so they can in turn, grow. The picture on Etsy’s quarterly report actually gets a lot better if you look at the line below the net loss. If you look to the adjusted acronym it says, “Earnings before interest taxes depreciation and amortization.” It’s definitely a mouth full and there’s a lot going on in there. It’s basically just a bunch of accounting. All of these things added together do add up to a net loss, which then helps Etsy to pay less taxes and in general, makes it more advantageous for the company as a whole. If you look at the line before all of this on the quarterly report, what you see is that yes, while it’s still down, the earnings are around $9.7 million. They’re down about thirty-four percent, not one hundred and thirty five percent. Why is it down…well, they bought a bunch of stuff! If you’re investing in the future, you’re bound to take a hit somewhere in the present. So, we shouldn’t look at that as a negative indicator for the future. Etsy did say they’d had a challenging February. I don’t think any of us will be surprise at this as it definitely was a slump kind of month. However, we’ve heard from some sellers that they had a great February on Etsy! It really does depend on who you’re talking to.
Clickbait: hook, line, and sinker
Let’s say you’re a journalist. A journalist looking for a story. And you’re a journalist, looking for a story when Etsy’s quarterly report for 2017 comes out. How do you write about it? Do you write in such a way that everything is happy go lucky and no one wants to click on your article after reading your title? No! You spin your story, looking for the most leading and exciting details and expound on those. You WANT people to click on your article, read your words and all the ads paying for your web space. Unfortunately, it doesn’t have to be the whole truth, part of the truth, or any truth at all as long as the clicks are coming in. It’s very easy to look at a company’s net loss and the fact that there’s a C.E.O. swap and tell a story with that information alone. Suddenly, you can spin a tale of pandemonium with only a few facts. If one would simply look further into the numbers, however, they would see this simply isn’t the case. Yes, they did trade lower when everything was announced. But this really is the normal ebb and flow of running a company. Actually, it’s a great opportunity for the larger institutional investors to pick it up. The general public will read all the stories and headlines. They will take them hook, line, and sinker, quickly selling their shares in fear. Then, the institutional investors swoop in and buy the shares at a discount. They’ll hold onto them until they go back up. Suddenly everyone’s like, oh, I wish I’d kept them! It’s a pattern that consistently happens.
Up, up, and away!
Active sellers has gone up a double digit percentage! Twelve percent to be exact. The even better news is that active buyers have gone up significantly as well by eighteen percent. You always want more people shopping on the website than people selling. And Etsy is absolutely doing that. The buyers are still outnumbering the sellers consistently. There are almost thirty million active buys compared to 1.8 million active sellers. Also, just because someone is an “active” seller on Etsy doesn’t mean their shop is put together. Their products may not even be selling well. The true competitive number of active sellers is even less than that 1.8 million would leave you to believe.
Picking up the phone
Another area on the rise are mobile visits. Often people ask just how much that means. Well, about sixty-six percent of your shop views are mobile visits. According to the Q1 report by Etsy, about fifty-one percent of all sales were from a mobile device! That’s over half of all sales on Etsy. This would make perfect sense as to why Etsy is investing in Etsy payments and offering ten different options. Two of these options include Android pay and Apple pay. Both of these payment methods are known to be more safe. The buyer and general public) doesn’t like entering in their card numbers on a bunch of different websites. One of the reasons Etsy is so popular with shoppers and continues to gain popularity is because there’s a history of trust between the buyer and Etsy. And shopping over a mobile device is now industry wide, not just an Etsy thing. The fact that Etsy is trying to keep up and accommodate this shows how forward thinking they’re being.
Investing in machine learning, search, and marketing
If you’re a seller on Etsy this is always a fantastic thing to know. Etsy is investing in all of these areas in order to attract new buyers and drive purchase frequency. This is awesome, because it means you have a bigger company with a bigger budget continuing to grow their awareness. It’s a sign that Etsy feels secure enough to bring in what they’re marketing towards. Also a great thing for a company. It might feel saturated when you’re in it every day, but most people we talk to don’t even know about Etsy. So the market for incoming customers is huge, which in turn only helps sellers.
One of the things Etsy is doing with their machine learning, is to make category specific suggestions. This will help improve both the listing process and collecting more accurate data. As you can imagine, there are many sellers on Etsy listing many different things. You’re going to want the keywords, tags and titles that you’re basing your search platform on to be as relevant as possible. Etsy is trying to structure their data in such a way that it delivers more meaningful search results. This helps when someone types something in the search bar. What they’re looking for will specifically show up or at the very least has a higher chance of showing up. This gives Etsy and their sellers a higher chance of a sale. And this is a good thing for all involved.
A shameless plug
One of the great things about Marmalead is that we’re independent of all that! No matter how Etsy is changing their search algorithms, machine learning and structured data, when you go to Marmalead and type in what you want the data we’re pulling back is down stream from all of those changes with Etsy. We are looking at the number of views, favorites and engagements the different keywords will bring in general. Any changes that Etsy is making in the actual algorithm behind the scenes is not impacting the work you’re doing on Marmalead. Now, it might change the way some keywords get better engagement down the road. So you definitely need to stay on top of those things. But you don’t have to worry about the data that you’re using Marmalead to find becoming irrelevant. We’re measuring engagement with a search term and not mechanically how to get there.
They spent how much?!
So, marketing expenses were up this quarter…by fifty percent to be exact. What does that look like in dollar signs? Oh, you know, just a measly little twenty-four million dollars in Q1. Say what?! As Gordon said…I’m not exactly sure when he said it…but, where do they market cause I don’t see it! Well, Etsy is mostly marketing on YouTube and Facebook…and not to Gordon apparently;) Product development also rose a bit this quarter. As we said, Etsy is working on improving the market place, Etsy payments, shop manager, all that fun stuff. Along with those, Etsy also spent eighteen million dollars on product development in Q1. A lot of that is employee related costs.
Gordon and Richie think this a really exciting time for Etsy. With all the changes happening (did we mention the C.T.O. exited stage left as well…yeah, that was a thing too) and with Etsy going public, this is a fantastic time to be on Etsy! This is what everyone wants, to be part of the early days of a fast growing and successful company. It might not seem like you’re in the early days. But, usually that whole overnight success story we hear about is ten years in the making. Etsy is just ten years old…sooooo…at some point, people will be looking at you wishing they’d been in on Etsy at this point in time. New things are happening which is exciting! and the people that see that and stick with it are those that will bear the fruit of it. It’s a great direction and is the right direction for Etsy to be moving.
Don’t be a Debbie Downer
Of course we know it’s easy to see the other side of things. Maybe you’re just coming through a spring slump, which is partly a seasonal thing. Then on top of that, you’re looking at the fact that Etsy is swapping out their C.E.O.. Also, their projected revenue was higher than what their earnings came in at for Q1. However, when you really look through things (like we just have) it truly seems like they’re moving in the right direction. They’re investing a lot of their capitol back into the company. This is what you want to see a company do! You don’t want to see them liquidate everything. That definitely isn’t a sign of growth…that’s a sign to exit stage left and fast! The incoming C.E.O. is talking about all the values that Etsy holds close which are important to him. Honestly, the writing on the wall is all around a good thing.
Make sure to listen to this week’s Jam, everyone! I obviously couldn’t cover everything here as usual. Some of the things the guys talk about are as follows: growing trees, The 40 Year Old Virigin, captains, “legit” articles, the “real” reason Chad left, mossy mushroom rocks, writing Kevin about conspiracy theories (poor Kevs) and chill armadillos.
Look forward to Gordon and Richie’s Flat Earth guide to Etsy SEO. I’m still trying to figure out if they’re serious about that or not, but I’ll just leave it here as a teaser;)